(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO

TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
Common Stock, $0.01 par value and associated New York Stock Exchange
rights to purchase preferred stock Chicago Stock Exchange
HL&P Capital Trust II 8.257% Capital Securities, New York Stock Exchange
Series B

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

NONE

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of each of the registrants' knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer (as
defined by Rule 12b-2 of the Act). Yes [X] No [ ]

The aggregate market value of the voting stock held by non-affiliates of
CenterPoint Energy, Inc. (Company) was $3,521,933,742 as of June 30, 2004, using
the definition of beneficial ownership contained in Rule 13d-3 promulgated
pursuant to the Securities Exchange Act of 1934 and excluding shares held by
directors and executive officers. As of February 28, 2005, the Company had
308,501,031 shares of Common Stock outstanding. Excluded from the number of
shares of Common Stock outstanding are 166 shares held by the Company as
treasury stock.

Portions of the definitive proxy statement relating to the 2005 Annual
Meeting of Shareholders of the Company, which will be filed with the Securities
and Exchange Commission within 120 days of December 31, 2004, are incorporated
by reference in Item 10, Item 11, Item 12, Item 13 and Item 14 of Part III of
this Form 10-K.

From time to time we make statements concerning our expectations, beliefs,
plans, objectives, goals, strategies, future events or performance and
underlying assumptions and other statements that are not historical facts. These
statements are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Actual results may differ materially
from those expressed or implied by these statements. You can generally identify
our forward-looking statements by the words "anticipate," "believe," "continue,"
"could," "estimate," "expect," "forecast," "goal," "intend," "may," "objective,"
"plan," "potential," "predict," "projection," "should," "will," or other similar
words.

We have based our forward-looking statements on our management's beliefs
and assumptions based on information available to our management at the time the
statements are made. We caution you that assumptions, beliefs, expectations,
intentions and projections about future events may and often do vary materially
from actual results. Therefore, we cannot assure you that actual results will
not differ materially from those expressed or implied by our forward-looking
statements.

Some of the factors that could cause actual results to differ from those
expressed or implied by our forward-looking statements are described under "Risk
Factors" beginning on page 24 in Item 1 of this report.

You should not place undue reliance on forward-looking statements. Each
forward-looking statement speaks only as of the date of the particular
statement, and we undertake no obligation to publicly update or revise any
forward-looking statements.

ii

PART I

ITEM 1. BUSINESS

OUR BUSINESS

OVERVIEW

We are a public utility holding company whose indirect wholly owned
subsidiaries include:

- CenterPoint Energy Houston Electric, LLC (CenterPoint Houston), which
provides electric transmission and distribution services to retail
electric providers serving approximately 1.9 million metered customers in
a 5,000-square-mile area of the Texas Gulf Coast that has a population of
approximately 4.8 million people and includes Houston, and

In July 2004, we announced our agreement to sell our majority owned
subsidiary, Texas Genco Holdings, Inc. (Texas Genco), to Texas Genco LLC
(formerly known as GC Power Acquisition LLC), an entity owned in equal parts by
affiliates of The Blackstone Group, Hellman & Friedman LLC, Kohlberg Kravis
Roberts & Co. L.P. and Texas Pacific Group. On December 15, 2004, Texas Genco
completed the sale of its fossil generation assets (coal, lignite and gas-fired
plants) to Texas Genco LLC for $2.813 billion in cash. Following the sale, Texas
Genco distributed $2.231 billion in cash to us. Texas Genco's principal
remaining asset is its ownership interest in the South Texas Project, a nuclear
generating facility. The final step of the transaction, the merger of Texas
Genco with a subsidiary of Texas Genco LLC in exchange for an additional cash
payment of $700 million to us, is expected to close during the first half of
2005, following receipt of approval from the Nuclear Regulatory Commission
(NRC). For more information regarding this transaction, please see
"-- Discontinued Operations -- Texas Genco" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Executive
Summary -- Recent Events -- Sale of Texas Genco."

Our reportable business segments are Electric Transmission & Distribution,
Natural Gas Distribution, Pipelines and Gathering, and Other Operations. The
operations of Texas Genco, formerly presented as our Electric Generation
business segment, are presented as discontinued operations.

We are a registered public utility holding company under the Public Utility
Holding Company Act of 1935, as amended (the 1935 Act). The 1935 Act and related
rules and regulations impose a number of restrictions on our activities and
those of our subsidiaries. The 1935 Act, among other things, limits our ability
and the ability of our regulated subsidiaries to issue debt and equity
securities without prior authorization, restricts the source of dividend
payments to current and retained earnings without prior authorization, regulates
sales and acquisitions of certain assets and businesses and governs affiliated
service, sales and construction contracts.

We make available free of charge on our Internet website our annual report
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable
after we electronically file such reports with, or furnish them to, the
Securities and Exchange Commission (SEC). Additionally, we make available free
of charge on our Internet website:

Any shareholder who so requests may obtain a printed copy of any of these
documents from us. Changes in or waivers of our Code of Ethics for our Chief
Executive Officer and Senior Financial Officers and waivers of our Ethics and
Compliance Code for directors or executive officers will be posted on our
Internet website within five business days and maintained for at least 12 months
or reported on Item 5.05 of our Forms 8-K. Our web site address is
www.centerpointenergy.com.

True-Up Proceeding Developments

Pursuant to the Texas Electric Choice Plan (the Texas electric
restructuring law), CenterPoint Houston is permitted to recover certain costs
associated with the transition to a competitive retail electric market in Texas.
The amount of costs recoverable was determined in a true-up proceeding before
the Public Utility Commission of Texas (the Texas Utility Commission).
CenterPoint Houston's requested true-up balance was $3.7 billion, excluding
interest and net of the retail clawback payable to CenterPoint Houston by a
former affiliate. In December 2004, the Texas Utility Commission approved a
final order in CenterPoint Houston's true-up proceeding authorizing CenterPoint
Houston to recover $2.3 billion including interest through August 31, 2004,
subject to adjustments to reflect the benefit of certain deferred taxes and the
accrual of interest and payment of excess mitigation credits after August 31,
2004. CenterPoint Houston has recorded as a regulatory asset a return of $374
million on the true-up balance for the period from January 1, 2002 through
December 31, 2004 as allowed by the Texas Utility Commission in the final order.
The component representing a return of costs to finance assets of $226 million
has been recognized in the fourth quarter of 2004 and is included in other
income in our consolidated financial statements. The component representing a
return of costs to finance assets will continue to be recognized as earned going
forward. The component representing an allowance for earnings on shareholders'
investment of $148 million has been deferred and will be recognized as it is
collected through rates in the future. CenterPoint Houston will continue to
accrue a return until the true-up balance is recovered, either from rate payers
or through a securitization offering as discussed below.

In January 2005, we appealed certain aspects of the final order seeking to
increase the true-up balance ultimately recovered by CenterPoint Houston. Other
parties have also appealed the order, seeking to reduce the amount authorized
for CenterPoint Houston's recovery. Although we believe we have meritorious
arguments and that the other parties' appeals are without merit, no prediction
can be made as to the ultimate outcome or timing of such appeals.

In December 2004, CenterPoint Houston filed for approval of a financing
order to issue transition bonds to securitize its true-up balance, which will be
adjusted downward to reflect the benefit of certain deferred taxes previously
recovered through rates, and upward to reflect the accrual of interest and
payment of excess mitigation credits occurring after August 31, 2004. On March
9, 2005, the Texas Utility Commission issued its order allowing CenterPoint
Houston to securitize approximately $1.8 billion and requiring that the benefit
of certain deferred taxes be reflected as a reduction in the competition
transition charge described below. CenterPoint Houston intends to issue
transition bonds in this amount during 2005 but may be delayed in doing so by
appeals of the securitization order.

CenterPoint Houston also has filed an application for a competition
transition charge to recover any portion of its adjusted true-up balance that it
is not able to recover through the issuance of transition bonds. Hearings in
this proceeding are scheduled for April 2005.

For more information on these and other matters currently affecting us,
please see "-- Electric Transmission & Distribution -- True-Up and
Securitization" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Executive Summary -- Significant Events in 2005."

2

ELECTRIC TRANSMISSION & DISTRIBUTION

Electric Transmission

On behalf of retail electric providers, CenterPoint Houston delivers
electricity from power plants to substations and from one substation to another
and to retail electric customers taking power above 69 kilovolts (kV) in
locations throughout the control area managed by the Electric Reliability
Council of Texas, Inc. (ERCOT). CenterPoint Houston provides transmission
services under tariffs approved by the Texas Utility Commission.

Electric Distribution

In Texas, end users purchase their electricity directly from certificated
"retail electric providers." CenterPoint Houston delivers electricity for retail
electric providers in its certificated service area by carrying lower-voltage
power from the substation to the retail electric customer. Its distribution
network receives electricity from the transmission grid through power
distribution substations and delivers electricity to end users through
distribution feeders. CenterPoint Houston's operations include construction and
maintenance of electric transmission and distribution facilities, metering
services, outage response services and call center operations. CenterPoint
Houston provides distribution services under tariffs approved by the Texas
Utility Commission. Texas Utility Commission rules and market protocols govern
the commercial operations of distribution companies and other market
participants.

ERCOT Market Framework

CenterPoint Houston is a member of ERCOT. ERCOT serves as the regional
reliability coordinating council for member electric power systems in Texas.
ERCOT membership is open to consumer groups, investor and municipally owned
electric utilities, rural electric cooperatives, independent generators, power
marketers and retail electric providers. The ERCOT market includes much of the
State of Texas, other than a portion of the panhandle, a portion of the eastern
part of the state bordering on Louisiana and the area in and around El Paso. The
ERCOT market represents approximately 85% of the demand for power in Texas and
is one of the nation's largest power markets. The ERCOT market includes an
aggregate net generating capacity of approximately 78,000 MW. There are only
limited direct current interconnections between the ERCOT market and other power
markets in the United States.

The ERCOT market operates under the reliability standards set by the North
American Electric Reliability Council. The Texas Utility Commission has primary
jurisdiction over the ERCOT market to ensure the adequacy and reliability of
electricity supply across the state's main interconnected power transmission
grid. The ERCOT independent system operator (ERCOT ISO) is responsible for
maintaining reliable operations of the bulk electric power supply system in the
ERCOT market. Its responsibilities include ensuring that electricity production
and delivery are accurately accounted for among the generation resources and
wholesale buyers and sellers. Unlike certain other regional power markets, the
ERCOT market is not a centrally dispatched power pool, and the ERCOT ISO does
not procure energy on behalf of its members other than to maintain the reliable
operations of the transmission system. Members who sell and purchase power are
responsible for contracting sales and purchases of power bilaterally. The ERCOT
ISO also serves as agent for procuring ancillary services for those members who
elect not to provide their own ancillary services.

CenterPoint Houston's electric transmission business, along with those of
other owners of transmission facilities in Texas, supports the operation of the
ERCOT ISO. The transmission business has planning, design, construction,
operation and maintenance responsibility for the portion of the transmission
grid and for the load-serving substations it owns, primarily within its
certificated area. We participate with the ERCOT ISO and other ERCOT utilities
to plan, design, obtain regulatory approval for and construct new transmission
lines necessary to increase bulk power transfer capability and to remove
existing constraints on the ERCOT transmission grid.

3

True-Up and Securitization

The Texas Electric Restructuring Law. The Texas electric restructuring
law, which became effective in September 1999, substantially amended the
regulatory structure governing electric utilities in order to allow retail
competition for electric customers beginning in January 2002. The Texas electric
restructuring law required electric utilities to separate generation,
transmission and distribution, and retail sales functions into three different
units. Through a restructuring in the third quarter of 2002 in response to this
law, we became the parent of CenterPoint Houston, Texas Genco and CERC. In the
restructuring, we also became the parent of, but subsequently divested our
interest in, Reliant Resources, Inc. (now named Reliant Energy, Inc.) (RRI),
which conducts non-utility wholesale and retail energy operations. Additionally,
as discussed further in "-- Discontinued Operations," we anticipate completing
the sale of our interest in the South Texas Project, which is owned by Texas
Genco, during the first half of 2005. The transmission and distribution
functions that CenterPoint Houston performs remain subject to traditional
utility rate regulation. CenterPoint Houston recovers the cost of its service
through an energy delivery charge approved by the Texas Utility Commission.

As part of the transition from a regulated to a competitive retail electric
market in Texas, the Texas electric restructuring law authorizes public
utilities to recover a true-up balance composed of stranded power plant costs,
the cost of environmental controls and certain other costs. The law requires the
true-up balance to be determined in a true-up proceeding before the Texas
Utility Commission (2004 True-Up Proceeding). The law authorizes the Texas
Utility Commission to permit utilities to issue transition bonds to recover all
or a part of the true-up balance. The issuance of these transition bonds is
based on the securitization of revenues associated with transition charges
imposed on retail electric providers. The law also provides for the Texas
Utility Commission to impose a separate charge (called a competition transition
charge) on retail electric providers to permit the utility to recover, over a
period of years to be determined by the Texas Utility Commission, the amount of
its true-up balance not otherwise recovered through the issuance of transition
bonds and included in transition charges. Both the transition charges and the
competition transition charges are non-bypassable, meaning that they must be
paid by essentially all customers and cannot, except in limited circumstances,
be avoided by switching to self-generation. CenterPoint Houston recovered a
portion of its generation-related regulatory assets in 2001 through the issuance
of transition bonds. For a further discussion of these matters, see "-- 2004
True-Up Proceeding" and "-- Securitization" below.

The Texas electric restructuring law also provides specific regulatory
remedies to reduce or mitigate a utility's stranded cost exposure. During a base
rate freeze period from 1999 through 2001, the law required those utilities
estimated in 1998 to have stranded costs to apply any earnings above the
utility's authorized rate of return to accelerate depreciation of
generation-related plant assets for regulatory purposes. In addition,
depreciation expense for transmission and distribution-related assets could be
redirected to generation assets for regulatory purposes during that period if
the utility was expected to have stranded costs. In 1998, the Texas Utility
Commission estimated that CenterPoint Houston would have stranded costs.
Accordingly, we implemented both of these mitigation measures as provided in the
Texas electric restructuring law. In a rate order issued in October 2001 (the
2001 Final Order), however, the Texas Utility Commission changed the assumptions
in its forecasting model, reversed its 1998 estimate, and required us to reverse
the mitigation actions we had taken pursuant to the Texas electric restructuring
law and ordered us to pay "excess mitigation credits" to retail electric
providers beginning January 1, 2002. See "-- Mitigation" below.

2004 True-Up Proceeding. On March 31, 2004, CenterPoint Houston filed the
final true-up application required by the Texas electric restructuring law with
the Texas Utility Commission. CenterPoint Houston's requested true-up balance
was $3.7 billion, excluding interest and net of the retail clawback from RRI
described below. In June, July and September 2004, the Texas Utility Commission
conducted hearings on and held public meetings addressing CenterPoint Houston's
true-up application. In December 2004, the Texas Utility Commission approved a
final order in CenterPoint Houston's true-up proceeding authorizing CenterPoint
Houston to recover $2.3 billion including interest through August 31, 2004,
subject to adjustments to reflect the benefit of certain deferred taxes and the
accrual of interest and payment of excess mitigation credits after August 31,
2004. CenterPoint Houston has recorded as a regulatory asset a return of $374
million on the true-up balance for the period from January 1, 2002 through
December 31, 2004 as allowed by the Texas Utility Commission in the final order.
The component representing a return of costs to

4

finance assets of $226 million has been recognized in the fourth quarter of 2004
and is included in other income in our consolidated financial statements. The
component representing a return of costs to finance assets will continue to be
recognized as earned going forward. The component representing an allowance for
earnings on shareholders' investment of $148 million has been deferred and will
be recognized as it is collected through rates in the future. CenterPoint
Houston will continue to accrue a return until the true-up balance is recovered,
either from rate payers or through a securitization offering as discussed below.

In January 2005, we appealed certain aspects of the final order seeking to
increase the true-up balance ultimately recovered by CenterPoint Houston. Other
parties have also appealed the order, seeking to reduce the amount authorized
for CenterPoint Houston's recovery. Although we believe we have meritorious
arguments and that the other parties' appeals are without merit, no prediction
can be made as to the ultimate outcome or timing of such appeals.

Retail Clawback. In November 2004, RRI paid $177 million to us,
representing the "retail clawback" determined by the Texas Utility Commission in
the 2004 True-Up Proceeding. The Texas electric restructuring law requires the
Texas Utility Commission to determine the retail clawback if the formerly
integrated utility's affiliated retail electric provider retained more than 40
percent of its residential price-to-beat customers within the utility's service
area as of January 1, 2004 (offset by new customers added outside the service
territory). That retail clawback is a credit against the true-up balance the
utility is entitled to recover and was reflected in the $2.3 billion recovery
authorized. Under the terms of a master separation agreement between RRI and us,
RRI agreed to pay us the amount of the retail clawback determined by the Texas
Utility Commission. We used the payment to reduce outstanding indebtedness.

Securitization. The Texas electric restructuring law provides for the use
of special purpose entities to issue transition bonds for the economic value of
generation-related regulatory assets and stranded costs. These transition bonds
will be repaid over a period not to exceed 15 years through non-bypassable
transition charges. In October 2001, a special purpose subsidiary of CenterPoint
Houston issued $749 million of transition bonds to securitize certain
generation-related regulatory assets. These transition bonds have a final
maturity date of September 15, 2015 and are non-recourse to us and our
subsidiaries other than to the special purpose issuer. Payments on the
transition bonds are made solely out of funds from non-bypassable transition
charges.

In December 2004, CenterPoint Houston filed for approval of a financing
order to issue transition bonds to securitize its true-up balance. On March 9,
2005, the Texas Utility Commission issued a financing order allowing CenterPoint
Houston to securitize approximately $1.8 billion and requiring that the benefit
of certain deferred taxes be reflected as a reduction in the competition
transition charge. We anticipate that a new special purpose subsidiary of
CenterPoint Houston will issue bonds in one or more series through an
underwritten offering. Depending on market conditions and the impact of possible
appeals of the financing order, among other factors, we anticipate completing
such an offering in 2005.

In January 2005, CenterPoint Houston filed an application for a competition
transition charge to recover its true-up balance, which will be adjusted
downward to reflect the benefit of certain deferred taxes previously recovered
through rates, and upward to reflect the accrual of interest and payment of
excess mitigation credits occurring after August 31, 2004. CenterPoint Houston
will adjust the amount sought through that charge to the extent that it is able
to securitize any of such amount. Under the Texas Utility Commission's rules,
the unrecovered true-up balance to be recovered through the competition
transition charge earns a return until fully recovered.

Mitigation. In the 2001 Final Order, the Texas Utility Commission
established the transmission and distribution rates that became effective in
January 2002. Based on its 2001 revision of the 1998 stranded cost estimates,
the Texas Utility Commission determined that CenterPoint Houston had
over-mitigated its stranded costs by redirecting transmission and distribution
depreciation and by accelerating depreciation of generation assets as provided
under its 1998 transition plan and the Texas electric restructuring law. In the
2001 Final Order, CenterPoint Houston was required to reverse the amount of
redirected depreciation and accelerated depreciation taken for regulatory
purposes as allowed under the 1998 transition plan and the Texas electric
restructuring law. In accordance with the order, CenterPoint Houston recorded a
regulatory liability to reflect the prospective refund of the accelerated
depreciation, and in January 2002 CenterPoint Houston began

5

paying excess mitigation credits, which were to be paid over a seven-year period
with interest at 7 1/2% per annum. The annual payment of excess mitigation
credits is approximately $264 million. In its December 2004 final order in the
2004 True-Up Proceeding, the Texas Utility Commission found that CenterPoint
Houston did, in fact, have stranded costs (as originally estimated in 1998).
Despite this ruling, the Texas Utility Commission denied CenterPoint Houston
recovery of approximately $180 million of the interest portion of the excess
mitigation credits already paid by CenterPoint Houston and refused to terminate
future excess mitigation credits. In January 2005, CenterPoint Houston filed a
writ of mandamus petition with the Texas Supreme Court asking that court to
order the Texas Utility Commission to terminate immediately the payment of all
excess mitigation credits and to ensure full recovery of all excess mitigation
credits. Although we believe we have meritorious arguments, a writ of mandamus
is an extraordinary remedy and no prediction can be made as to the ultimate
outcome or timing of the mandamus petition. If the Supreme Court denies our
mandamus petition, we will continue to pursue this issue through regular
appellate mechanisms. On March 1, 2005, a non-unanimous settlement was filed in
Docket No. 30774, which involves the adjustment of RRI's Price-to-Beat. Under
the terms of that settlement, the excess mitigation credits being paid by
CenterPoint Houston would be terminated as of April 29, 2005. The Texas Utility
Commission approved the settlement on March 9, 2005.

Customers

CenterPoint Houston serves nearly all of the Houston/Galveston metropolitan
area. CenterPoint Houston's customers consist of municipalities, electric
cooperatives, other distribution companies and approximately 56 retail electric
providers in its certificated service area. Each retail electric provider is
licensed by, and must meet creditworthiness criteria established by, the Texas
Utility Commission. Two of these retail electric providers are subsidiaries of
RRI. Sales to subsidiaries of RRI represented approximately 83%, 78% and 71% of
CenterPoint Houston's transmission and distribution revenues in 2002, 2003 and
2004, respectively. CenterPoint Houston's billed receivables balance from retail
electric providers as of December 31, 2004 was $102 million. Approximately 69%
of this amount was owed by subsidiaries of RRI. CenterPoint Houston does not
have long-term contracts with any of its customers. It operates on a continuous
billing cycle, with meter readings being conducted and invoices being
distributed to retail electric providers each business day.

Competition

There are no other transmission and distribution utilities in CenterPoint
Houston's service area. In order for another provider of transmission and
distribution services to provide such services in CenterPoint Houston's
territory, it would be required to obtain a certificate of convenience and
necessity from the Texas Utility Commission and, depending on the location of
the facilities, may also be required to obtain franchises from one or more
municipalities. We know of no other party intending to enter this business in
CenterPoint Houston's service area at this time.

Seasonality

A significant portion of CenterPoint Houston's revenues is derived from
rates that it collects from each retail electric provider based on the amount of
electricity it distributes on behalf of such retail electric provider. Thus,
CenterPoint Houston's revenues and results of operations are subject to
seasonality, weather conditions and other changes in electricity usage, with
revenues being higher during the warmer months.

Properties

All of CenterPoint Houston's properties are located in Texas. CenterPoint
Houston's transmission system carries electricity from power plants to
substations and from one substation to another. These substations serve to
connect power plants, the high voltage transmission lines and the lower voltage
distribution lines. Unlike the transmission system, which carries high voltage
electricity over long distances, distribution lines carry lower voltage power
from the substation to the retail electric customers. The distribution system
consists primarily of distribution lines, transformers, secondary distribution
lines and service wires and meters. Most of CenterPoint

6

Houston's transmission and distribution lines have been constructed over lands
of others pursuant to easements or along public highways and streets as
permitted by law.

All real and tangible properties of CenterPoint Houston, subject to certain
exclusions, are currently subject to:

- the lien of a Mortgage and Deed of Trust (the Mortgage) dated November 1,
1944, as supplemented; and

- the lien of a General Mortgage (the General Mortgage) dated October 10,
2002, as supplemented, which is junior to the lien of the Mortgage.

As of March 1, 2005, CenterPoint Houston had outstanding approximately $253
million aggregate principal amount of first mortgage bonds under the Mortgage,
including approximately $151 million held in trust to secure certain pollution
control bonds for which CenterPoint Energy is obligated. Additionally, under the
General Mortgage, CenterPoint Houston had outstanding approximately $3.3 billion
aggregate principal amount of general mortgage bonds, including approximately
$527 million held to secure certain additional pollution control bonds for which
CenterPoint Energy is obligated, approximately $229 million held to secure
pollution control bonds for which CenterPoint Houston is obligated and
approximately $1.3 billion aggregate principal amount of general mortgage bonds
to secure the borrowings under a collateralized term loan due in November 2005.
Any drawings on CenterPoint Houston's $1.3 billion credit agreement entered into
in March 2005 must be secured by general mortgage bonds in the same principal
amount and bearing the same interest rate as such drawings.

Electric Lines -- Overhead. As of December 31, 2004, CenterPoint Houston
owned 26,669 pole miles of overhead distribution lines and 3,612 circuit miles
of overhead transmission lines, including 452 circuit miles operated at 69,000
volts, 2,083 circuit miles operated at 138,000 volts and 1,077 circuit miles
operated at 345,000 volts.

Electric Lines -- Underground. As of December 31, 2004, CenterPoint
Houston owned 15,244 circuit miles of underground distribution lines and 18.8
circuit miles of underground transmission lines, including 4.5 circuit miles
operated at 69,000 volts and 14.3 circuit miles operated at 138,000 volts.

Substations. As of December 31, 2004, CenterPoint Houston owned 225 major
substation sites having total installed rated transformer capacity of 46,424
megavolt amperes.

Service Centers. CenterPoint Houston operates 16 regional service centers
located on a total of 404 acres of land. These service centers consist of office
buildings, warehouses and repair facilities that are used in the business of
transmitting and distributing electricity.

Franchises. CenterPoint Houston has franchise contracts with 90 of the 91
cities in its service area. The remaining city has enacted an ordinance that
governs the placement of utility facilities in its streets. These franchises and
this ordinance, typically having a term of 50 years, give CenterPoint Houston
the right to construct, operate and maintain its transmission and distribution
system within the streets and public ways of these municipalities for the
purpose of delivering electric service to the municipality, its residents and
businesses in exchange for payment of a fee. The franchise for the City of
Houston is scheduled to expire in 2007.

NATURAL GAS DISTRIBUTION

Local Distribution Companies

CERC's natural gas distribution business engages in intrastate natural gas
sales to, and natural gas transportation for, residential, commercial and
industrial customers in Arkansas, Louisiana, Minnesota, Mississippi, Oklahoma
and Texas through three unincorporated divisions: Houston Gas, Minnesota Gas and
Southern Gas Operations. In an effort to increase brand recognition, the naming
conventions of CERC's three unincorporated divisions were changed in 2004.
CenterPoint Energy Arkla and the portion of CenterPoint Energy Entex (Entex)
located outside of the metropolitan Houston area were renamed Southern Gas

7

Operations. The metropolitan Houston portion of Entex was renamed Houston Gas,
and CenterPoint Energy Minnegasco was renamed Minnesota Gas. These operations
are regulated as natural gas utility operations in the jurisdictions served by
these divisions.

Houston Gas provides natural gas distribution services to approximately
1,030,000 customers in over 100 communities in the Houston metropolitan area. In
2004, approximately 99% of Houston Gas' total throughput was attributable to
retail sales and approximately 1% was attributable to transportation services.

Minnesota Gas provides natural gas distribution services to approximately
750,000 customers in over 240 communities. The largest metropolitan area served
by Minnesota Gas is Minneapolis. In 2004, approximately 91% of Minnesota Gas'
total throughput was attributable to retail sales and approximately 9% was
attributable to transportation services. Minnesota Gas also provides unregulated
services consisting of heating, ventilating and air conditioning (HVAC)
equipment and appliance repair, sales of HVAC, water heating and hearth
equipment and home security monitoring.

Southern Gas Operations provides natural gas distribution services to
approximately 1,260,000 customers in Arkansas, Louisiana, Mississippi, Oklahoma
and Texas. The largest metropolitan areas served by Southern Gas Operations are
Little Rock, Arkansas; Shreveport, Louisiana; Biloxi, Mississippi; Lawton,
Oklahoma; and Laredo, Texas. In 2004, approximately 72% of Southern Gas
Operations' total throughput was attributable to retail sales and approximately
28% was attributable to transportation services.

The demand for intrastate natural gas sales to, and natural gas
transportation for, residential, commercial and industrial customers is
seasonal. In 2004, approximately 70% of the total throughput of CERC's local
distribution companies' business occurred in the first and fourth quarters.
These patterns reflect the higher demand for natural gas for heating purposes
during those periods.

Supply and Transportation. In 2004, Houston Gas purchased virtually all of
its natural gas supply pursuant to contracts, with remaining terms varying from
a few months to two years. Houston Gas' major suppliers in 2004 included
American Electric Power Company (50% of supply volumes) and Kinder Morgan Texas
Pipeline (27%). Numerous other suppliers provided the remaining 23% of Houston
Gas' natural gas supply requirements. Houston Gas transports its natural gas
supplies through various interstate and intrastate pipelines under contracts
with remaining terms varying from one to five years.

In 2004, Minnesota Gas purchased virtually all of its natural gas supply
pursuant to contracts, with remaining terms varying from a few months to four
years. Minnesota Gas' major suppliers in 2004 included BP Canada Energy
Marketing (61% of supply volumes), Occidental Energy Marketing (6%), Tenaska
Marketing Ventures (6%), Prairielands Energy Marketing (4%) and Oneok Energy
Services Company (4%). Numerous other suppliers provided the remaining 19% of
Minnesota Gas' natural gas supply requirements. Minnesota Gas transports its
natural gas supplies through various interstate pipelines under contracts with
remaining terms varying from one to eight years.

In 2004, Southern Gas Operations purchased virtually all of its natural gas
supply pursuant to contracts, with remaining terms varying from a few months to
five years. Southern Gas Operations' major suppliers in 2004 included BP Energy
Company (23% of supply volumes), CenterPoint Energy Gas Services (CEGS), a
subsidiary of CERC Corp., (18%), Entergy-Koch, LP (12%), Oneok Energy Marketing
and Trading LLC (8%), American Electric Power Company (6%) and Conoco Phillips
Company (5%). Numerous other suppliers provided the remaining 28% of Southern
Gas Operations' natural gas supply requirements. Southern Gas Operations
transports its natural gas supplies through various intrastate and interstate
pipelines including CenterPoint Energy's pipeline subsidiary.

Generally, the regulations of the states in which CERC's natural gas
distribution business operates allow it to pass through changes in the costs of
natural gas to its customers under purchased gas adjustment provisions in its
tariffs.

Minnesota Gas and Southern Gas Operations use various leased or owned
natural gas storage facilities to meet peak-day requirements and to manage the
daily changes in demand due to changes in weather.

8

Minnesota Gas also supplements contracted supplies and storage from time to time
with stored liquefied natural gas and propane-air plant production.

Minnesota Gas owns and operates an underground storage facility with a
capacity of 7.0 billion cubic feet (Bcf). It has a working capacity of 2.1 Bcf
available for use during a normal heating season and a maximum daily withdrawal
rate of 50 million cubic feet (MMcf). It also owns nine propane-air plants with
a total capacity of 204 MMcf per day and on-site storage facilities for 12
million gallons of propane (1.0 Bcf gas equivalent). Minnesota Gas owns
liquefied natural gas plant facilities with a 12 million-gallon liquefied
natural gas storage tank (1.0 Bcf gas equivalent) and a send-out capability of
72 MMcf per day.

On an ongoing basis, CERC enters into contracts to provide sufficient
supplies and pipeline capacity to meet its customer requirements. However, it is
possible for limited service disruptions of interruptible customers' load to
occur from time to time due to weather conditions, transportation constraints
and other events. As a result of these factors, supplies of natural gas may
become unavailable from time to time, or prices may increase rapidly in response
to temporary supply constraints or other factors.

Non-Rate Regulated Gas Sales and Services

CERC offers variable and fixed priced physical natural gas supplies to
commercial and industrial customers and natural gas distributors through a
number of subsidiaries, primarily CEGS. In 2004, CEGS marketed approximately 579
Bcf (including 134 Bcf to affiliates) of natural gas, transportation and related
energy services to more than 6,000 customers which vary in size from small
commercial to large utility companies in the central regions of the United
States. These customers are served from offices located in Illinois, Louisiana,
Minnesota, Missouri, Texas and Wisconsin. The business has three operational
functions: wholesale, retail and intrastate pipelines further described below.

Intrastate Pipeline Operations. Another wholly owned subsidiary of CERC
owns and operates approximately 210 miles of intrastate pipeline in Louisiana
and Texas. This subsidiary provides bundled and unbundled merchant and
transportation services to shippers and end-users.

CEGS currently operates on over 30 pipelines throughout the central United
States. CEGS maintains a portfolio of long-term natural gas supply contracts and
firm transportation agreements to meet the natural gas requirements of its
customers. CEGS aggregates supply from various producing regions and offers
contracts to buy natural gas with terms ranging from one month to over five
years. In addition, CEGS actively participates in the spot natural gas markets
in an effort to balance daily and monthly purchases and sales obligations. Gas
supply and transportation capabilities are leveraged through contracts for
ancillary services including physical storage and other balancing arrangements.

As described above, CEGS offers its customers a variety of load following
services. In providing these services, CEGS will use its customers' purchase
commitments to forecast and arrange its own supply purchases and transportation
services to serve customers' natural gas requirements. As a result of the
variance between this forecast activity and the actual monthly activity, CEGS
will either have too much supply or too little supply relative to its customers'
purchase commitments. These supply imbalances arise each month as customers'
natural gas requirements are scheduled and corresponding natural gas supplies
are nominated by CEGS for delivery to these customers. CEGS' processes and risk
control environment are designed to measure and value all supply imbalances on a
real time basis to ensure that CEGS' exposure to commodity price and volume risk
is kept to a minimum. The value assigned to these volumetric imbalances is
calculated

9

daily and is known as the aggregate Value at Risk (VaR). In 2004, CEGS' VaR
averaged $0.2 million with a high of $1 million.

The CenterPoint Energy Risk Control policy, governed by the Risk Oversight
Committee, defines authorized and prohibited trading instruments and volumetric
trading limits. CEGS is a physical marketer of natural gas and uses a variety of
tools, including pipeline and storage capacity, financial instruments and
physical commodity purchase contracts to support its sales. The CEGS business
optimizes its use of these various tools to minimize its supply costs and does
not engage in proprietary or speculative commodity trading. The low VaR limits
within which CEGS operates are consistent with its operational objective of
matching its aggregate sales obligations (including the swing associated with
load following services) with its supply portfolio in a manner that minimizes
its total cost of supply.

Assets

As of December 31, 2004, CERC owned approximately 65,000 linear miles of
gas distribution mains, varying in size from one-half inch to 24 inches in
diameter. Generally, in each of the cities, towns and rural areas served by
CERC, we own the underground gas mains and service lines, metering and
regulating equipment located on customers' premises and the district regulating
equipment necessary for pressure maintenance. With a few exceptions, the
measuring stations at which CERC receives gas are owned, operated and maintained
by others, and its distribution facilities begin at the outlet of the measuring
equipment. These facilities, including odorizing equipment, are usually located
on the land owned by suppliers.

Competition

CERC competes primarily with alternate energy sources such as electricity
and other fuel sources. In some areas, intrastate pipelines, other gas
distributors and marketers also compete directly for gas sales to end-users. In
addition, as a result of federal regulatory changes affecting interstate
pipelines, natural gas marketers operating on these pipelines may be able to
bypass CERC's facilities and market and sell and/or transport natural gas
directly to commercial and industrial customers.

PIPELINES AND GATHERING

CERC's pipelines and gathering business operates two interstate natural gas
pipelines, as well as gas gathering facilities and also provides operating and
technical services and remote data monitoring and communication services. The
rates charged by interstate pipelines for interstate transportation and storage
services are regulated by the Federal Energy Regulatory Commission (FERC).

CERC's gathering operations are conducted by a wholly owned gas gathering
subsidiary, CenterPoint Energy Field Services, Inc. (CEFS). CEFS is a natural
gas gathering and processing business serving natural gas fields in the
Midcontinent basin of the United States that interconnect with CEGT's and MRT's
pipelines, as well as other interstate and intrastate pipelines. CEFS operates
gathering pipelines, which collect natural gas from approximately 200 separate
systems located in major producing fields in Arkansas, Louisiana, Oklahoma and
Texas. CEFS, through its Service Star operating division, provides remote data
monitoring and communications services to affiliates and third parties. The
Service Star operating division currently provides

In 2004, approximately 22% of our total operating revenue from pipelines
and gathering was attributable to services provided to Southern Gas Operations
and approximately 9% was attributable to services to Laclede Gas Company
(Laclede), an unaffiliated distribution company that provides natural gas
utility service to the greater St. Louis metropolitan area in Illinois and
Missouri. Services to Southern Gas Operations and Laclede are provided under
several long-term firm storage and transportation agreements. The agreement to
provide services to Laclede expires in 2007. Agreements for firm transportation,
no notice transportation service and storage service in Southern Gas Operations'
major service areas (Arkansas, Louisiana and Oklahoma) have recently been
entered into and expire in 2012. The Oklahoma agreements are subject to the
approval of the Oklahoma Corporation Commission (OCC).

Our pipelines and gathering business operations may be affected by changes
in the demand for natural gas, the available supply and relative price of
natural gas in the Midcontinent and Gulf Coast natural gas supply regions and
general economic conditions.

Assets

We own and operate approximately 8,200 miles of gas transmission lines
primarily located in Missouri, Illinois, Arkansas, Louisiana, Oklahoma and
Texas. We also own and operate six natural gas storage fields with a combined
daily deliverability of approximately 1.2 Bcf per day and a combined working gas
capacity of approximately 59.0 Bcf. We also own a 10% interest in Gulf South
Pipeline Company, LP's Bistineau storage facility. This facility has a total
working gas capacity of 73.8 Bcf and approximately 1.1 Bcf per day of
deliverability. Our storage capacity in the Bistineau facility is 8 Bcf of
working gas with 100 MMcf per day of deliverability. Most of our storage
operations are in north Louisiana and Oklahoma. We also own and operate
approximately 4,300 miles of gathering pipelines that collect, treat and process
natural gas from approximately 200 separate systems located in major producing
fields in Arkansas, Louisiana, Oklahoma and Texas.

Competition

Our pipelines and gathering business competes with other interstate and
intrastate pipelines and gathering companies in the transportation and storage
of natural gas. The principal elements of competition among pipelines are rates,
terms of service, and flexibility and reliability of service. Our pipelines and
gathering business competes indirectly with other forms of energy available to
our customers, including electricity, coal and fuel oils. The primary
competitive factor is price. Changes in the availability of energy and pipeline
capacity, the level of business activity, conservation and governmental
regulations, the capability to convert to alternative fuels, and other factors,
including weather, affect the demand for natural gas in areas we serve and the
level of competition for transportation and storage services. In addition,
competition for our gathering operations is impacted by commodity pricing levels
because of their influence on the level of drilling activity. Both pipeline
services and Service Star compete with other similar service companies based on
market pricing. The principal elements of competition are rates, terms of
service and reliability of services.

OTHER OPERATIONS

Our Other Operations business segment includes office buildings and other
real estate used in our business operations and other corporate operations which
support all of our business operations.

DISCONTINUED OPERATIONS

Texas Genco

Disposition. On December 14, 2004, Texas Genco merged with an indirect
wholly owned subsidiary of CenterPoint Energy. As a result of the merger, Texas
Genco became our indirect wholly owned subsidiary,

11

and all of Texas Genco's publicly-held shares (other than 227 shares held by
shareholders who validly perfected their dissenter's rights under Texas law)
were converted into the right to receive $47 per share in cash without interest
(the Merger Consideration) less any applicable withholding taxes. In connection
with the merger, Texas Genco entered into a credit agreement (the Overnight
Bridge Loan) under which it borrowed approximately $716 million on December 14,
2004 to finance the payment of the aggregate Merger Consideration payable as a
result of the merger. Texas Genco's shares ceased to be publicly traded as of
the close of trading on December 14, 2004. The merger was part of the first step
of the sale transaction announced in July 2004 in which Texas Genco LLC
(formerly known as GC Power Acquisition LLC), an entity owned in equal parts by
affiliates of The Blackstone Group, Hellman & Friedman LLC, Kohlberg Kravis
Roberts & Co. L.P. and Texas Pacific Group, agreed to acquire Texas Genco for
approximately $3.65 billion in cash.

On December 15, 2004, Texas Genco completed the sale of its fossil
generation assets (coal, lignite and gas-fired plants) to Texas Genco LLC for
$2.813 billion in cash. Texas Genco used approximately $716 million of the cash
proceeds from the sale to repay the Overnight Bridge Loan and distributed $2.231
billion, consisting of the balance of the cash proceeds from the sale and cash
on hand, to us. We used the proceeds primarily to repay outstanding
indebtedness.

In connection with the sale of Texas Genco's fossil generation assets to
Texas Genco LLC, Texas Genco, LP, a subsidiary of Texas Genco (Genco LP) also
entered into a services agreement with Texas Genco LLC, under which Texas Genco
LLC has agreed to provide at cost energy dispatch and coordination services to
Genco LP, administer Genco LP's PUC-mandated capacity auctions and market Genco
LP's excess capacity and energy to third parties. For those services, Genco LP
will pay a monthly fee.

Following the sale of its fossil generation assets, Texas Genco's principal
remaining asset is its interest in the South Texas Project. Texas Genco
currently owns a 30.8% interest in the South Texas Project, which is subject to
increase pursuant to the right of first refusal described below, and currently
bears a corresponding 30.8% share of the capital and operating costs associated
with the project.

In connection with the sale of Texas Genco's fossil generation assets to
Texas Genco LLC, Genco LP entered into a power purchase and sale agreement with
a subsidiary of Texas Genco LLC, which we refer to as the back-to-back power
purchase agreement. Under this agreement, Genco LP has agreed to sell forward a
substantial portion of Genco LP's total share of the energy from the South Texas
Project through December 31, 2008. Genco LP has agreed to sell this energy on a
unit-contingent basis, meaning that Genco LP will be excused (subject to the
contingent payment for economic costs described below) from its obligations to
deliver this energy to the extent the energy is unavailable as a result of a
derating or forced outage at the South Texas Project or other specified causes.

During the period from the closing of the first step of the sale
transaction until the closing of the second step, the pricing for the energy
sold under the back-to-back power purchase agreement will be at the
weighted-average price achieved by Texas Genco LLC on its firm forward sales in
the South ERCOT zone, subject to payment by Genco LP to Texas Genco LLC, in the
event the second step does not close, of 50% of the economic cost (i.e.
liquidated damages payable to third parties or cost of cover) incurred by Texas
Genco LLC during that period as a result of energy from the South Texas Project
being unavailable to meet the contract quantity. After any termination of the
transaction agreement, the pricing for this energy will be at 90% of such
weighted-average price, with no contingent payment for economic costs. The
transaction agreement may be terminated under various circumstances, including a
failure to close the second step of the sale transaction by April 30, 2005
(which date may be extended by either party for up to two consecutive 90-day
periods if NRC approval has not yet been obtained or is being contested and all
other closing conditions are capable of being satisfied).

The second step of the transaction, the merger of Texas Genco with a
subsidiary of Texas Genco LLC in exchange for an additional cash payment to us
of $700 million, is expected to close during the first half of 2005 following
receipt of approval from the NRC. Total cash proceeds to CenterPoint Energy from
both steps of the transaction are expected to be $2.931 billion, or
approximately $2.5 billion net of tax.

12

We recorded an after-tax loss of approximately $214 million in 2004 related
to the sale of Texas Genco and an additional after-tax loss of $152 million
offsetting our interest in Texas Genco's 2004 earnings. Until the sale of Texas
Genco is complete, our interest in any future Texas Genco earnings will be
offset by an increase in the loss on the pending sale. The consolidated
financial statements included in this annual report on Form 10-K present Texas
Genco's operations as discontinued operations in accordance with Statement of
Financial Accounting Standards (SFAS) No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" (SFAS No. 144).

Right of First Refusal. On September 3, 2004, Genco LP signed an agreement
to purchase a portion of AEP Texas Central Company's (AEP) 25.2% interest in the
South Texas Project for approximately $174 million. Once the purchase is
complete, Genco LP will own an additional 13.2% interest in the South Texas
Project for a total of 44%, or approximately 1,100 MW. This purchase agreement
was entered into pursuant to Genco LP's right of first refusal to purchase this
interest when AEP announced its agreement to sell this interest to a third
party. In addition to AEP's ownership interest and Genco LP's current 30.8%
ownership, the 2,500 MW nuclear plant is currently 28%-owned by City Public
Service of San Antonio (CPS) and 16%-owned by Austin Energy. CPS is expected to
purchase AEP's remaining 12% ownership interest under its right of first
refusal. The sale is subject to approval by the NRC. Texas Genco expects to fund
the purchase of its share of AEP's interest, including reimbursements of draws
under letters of credit, with existing cash balances that have been provided to
cash collateralize the letters of credit as described below and, if necessary,
cash expected to be generated through operations. If CPS were to fail to
purchase the 12% interest it has agreed to acquire, Texas Genco would purchase
AEP's entire 25.2% interest in the South Texas Project, in which case Texas
Genco would need approximately $158 million of additional cash. We expect this
transaction will be completed by the end of the second quarter of 2005.

In December 2004, prior to the consummation of the sale of Texas Genco's
coal, lignite and gas-fired generation assets to Texas Genco LLC, the $250
million revolving credit facility of Genco LP was terminated and the then
outstanding letters of credit aggregating $182 million issued under the facility
in favor of AEP relating to the right of first refusal were cash collateralized
at 105% of their face amount. In February 2005, Genco LP also established a $75
million term loan facility under which borrowings may be made for working
capital purposes at the London interbank offered rate (LIBOR) plus 50 basis
points. Two drawings aggregating $75 million may be made under the facility
which matures on the earlier of August 2005 or the closing of the final step of
the Texas Genco sale. An initial draw of $59 million was made in February 2005.
This facility is secured by a lien on Texas Genco's equity and partnership
interests in its subsidiaries and cash collateral accounts described above.

Fuel Supply. The South Texas Project satisfies its fuel supply
requirements by acquiring uranium concentrates, converting uranium concentrates
into uranium hexafluoride, enriching uranium hexafluoride, and fabricating
nuclear fuel assemblies under a number of contracts covering a portion of the
fuel requirements of the South Texas Project for uranium, conversion services,
enrichment services and fuel fabrication. Other than a fuel fabrication
agreement that extends for the life of the South Texas Project, these contracts
have varying expiration dates, and most are short to medium term (less than
seven years). We believe that sufficient capacity for nuclear fuel supplies and
processing currently exists to permit normal operations of the South Texas
Project's generating units.

Other

On September 30, 2002, we distributed to our shareholders on a pro-rata
basis all of the shares of RRI common stock owned by us. The consolidated
financial statements have been prepared to reflect the effect of the RRI
distribution. The consolidated financial statements present the RRI businesses
(Wholesale Energy, European Energy, Retail Energy and related corporate costs)
as discontinued operations in accordance with SFAS No. 144. As a result of the
spin-off of RRI, we recorded a non-cash loss on disposal of discontinued
operations of $4.4 billion in 2002, which represented the excess of the carrying
value of our investment in RRI over the market value of RRI common stock at the
time of the RRI Distribution.

13

In February 2003, we sold our interest in Argener, a cogeneration facility
in Argentina, for $23 million. The carrying value of this investment was
approximately $11 million as of December 31, 2002. We recorded an after-tax gain
of $7 million from the sale of Argener in the first quarter of 2003. In April
2003, we sold our final remaining investment in Argentina, a 90 percent interest
in Empresa Distribuidora de Electricidad de Santiago del Estero S.A. We recorded
an after-tax loss of $3 million in the second quarter of 2003 related to our
Latin America operations. We have completed our strategy of exiting all of our
international investments. The consolidated financial statements present these
operations as discontinued operations in accordance with SFAS No. 144.

In November 2003, we sold CenterPoint Energy Management Services (CEMS), a
business that provides district cooling services in the Houston, Texas central
business district and related complementary energy services to district cooling
customers and others. The assets and liabilities of this business have been
classified in the Consolidated Balance Sheets as discontinued operations. We
recorded an after-tax loss of $1 million from the sale of CEMS in the fourth
quarter of 2003. We recorded an after-tax loss in discontinued operations of $16
million ($25 million pre-tax) during the second quarter of 2003 to record the
impairment of the CEMS long-lived assets based on the impending sale and to
record one-time termination benefits. The consolidated financial statements
present these operations as discontinued operations in accordance with SFAS No.
144.

FINANCIAL INFORMATION ABOUT SEGMENTS

For financial information about our segments, see Note 15 to our
consolidated financial statements, which note is incorporated herein by
reference.

REGULATION

We are subject to regulation by various federal, state and local
governmental agencies, including the regulations described below.

PUBLIC UTILITY HOLDING COMPANY ACT OF 1935

As a registered public utility holding company, we and our subsidiaries are
subject to a comprehensive regulatory scheme imposed by the SEC in order to
protect customers, investors and the public interest. Although the SEC does not
regulate rates and charges under the 1935 Act, it does regulate the structure,
financing, lines of business and internal transactions of public utility holding
companies and their system companies. In order to obtain financing, acquire
additional public utility assets or stock, or engage in other significant
transactions, we are generally required to obtain approval from the SEC under
the 1935 Act.

We received an order from the SEC under the 1935 Act on June 30, 2003 and
supplemental orders thereafter relating to our financing activities and those of
our regulated subsidiaries, as well as other matters. The orders are effective
until June 30, 2005. As of December 31, 2004, the orders generally permitted us
and our subsidiaries to issue securities to refinance indebtedness outstanding
at June 30, 2003, and authorized us and our subsidiaries to issue certain
incremental external debt securities and common and preferred stock through June
30, 2005 in specified amounts, without prior authorization from the SEC. The
orders also contain certain requirements regarding ratings of our securities,
interest rates, maturities, issuance expenses and use of proceeds. The orders
generally require that CenterPoint Houston and CERC maintain a ratio of common
equity to total capitalization of at least 30%. We intend to file an application
for approval of our post-June 30, 2005 financing activities.

Pursuant to requirements of the orders, we formed a service company,
CenterPoint Energy Service Company, LLC (Service Company), that began operation
as of January 1, 2004, to provide certain corporate and shared services to our
subsidiaries. Those services are provided pursuant to service arrangements that
are in a form prescribed by the SEC. Services are provided by the Service
Company at cost and are subject to oversight and periodic audit from the SEC.

14

The United States Congress from time to time considers legislation that
would repeal the 1935 Act. We cannot predict at this time whether this
legislation or any variation thereof will be adopted or, if adopted, the effect
of any such law on our business.

FEDERAL ENERGY REGULATORY COMMISSION

The FERC has jurisdiction under the Natural Gas Act and the Natural Gas
Policy Act of 1978, as amended, to regulate the transportation of natural gas in
interstate commerce and natural gas sales for resale in intrastate commerce that
are not first sales. The FERC regulates, among other things, the construction of
pipeline and related facilities used in the transportation and storage of
natural gas in interstate commerce, including the extension, expansion or
abandonment of these facilities. The rates charged by interstate pipelines for
interstate transportation and storage services are also regulated by the FERC.

Our natural gas pipeline subsidiaries may periodically file applications
with the FERC for changes in their generally available maximum rates and charges
designed to allow them to recover their costs of providing service to customers
(to the extent allowed by prevailing market conditions), including a reasonable
rate of return. These rates are normally allowed to become effective after a
suspension period and, in some cases, are subject to refund under applicable law
until such time as the FERC issues an order on the allowable level of rates.

On November 25, 2003, the FERC issued Order No. 2004, the final rule
modifying the Standards of Conduct applicable to electric and natural gas
transmission providers, governing the relationship between regulated
transmission providers and certain of their affiliates. During 2004, the FERC
Order was amended three times. The rule significantly changes and expands the
regulatory burdens of the Standards of Conduct and applies essentially the same
standards to jurisdictional electric transmission providers and natural gas
pipelines. On February 9, 2004, our natural gas pipeline subsidiaries filed
Implementation Plans required under the new rule. Those subsidiaries were
further required to post their Implementation Procedures on their websites by
September 22, 2004, and to be in compliance with the requirements of the new
rule by that date.

CenterPoint Houston is not a "public utility" under the Federal Power Act
and therefore is not generally regulated by the FERC, although certain of its
transactions are subject to limited FERC jurisdiction.

STATE AND LOCAL REGULATION

Electric Transmission & Distribution. CenterPoint Houston conducts its
operations pursuant to a certificate of convenience and necessity issued by the
Texas Utility Commission that covers its present service area and facilities. In
addition, CenterPoint Houston holds non-exclusive franchises, typically having a
term of 50 years, from the incorporated municipalities in its service territory.
These franchises give CenterPoint Houston the right to construct, operate and
maintain its transmission and distribution system within the streets and public
ways of these municipalities for the purpose of delivering electric service to
the municipality, its residents and businesses in exchange for payment of a fee.
The franchise for the City of Houston is scheduled to expire in 2007.

All retail electric providers in CenterPoint Houston's service area pay the
same rates and other charges for transmission and distribution services.

CenterPoint Houston's distribution rates charged to retail electric
providers for residential customers are based on amounts of energy delivered,
whereas distribution rates for a majority of commercial and industrial customers
are based on peak demand. Transmission rates charged to other distribution
companies are based on amounts of energy transmitted under "postage stamp" rates
that do not vary with the distance the energy is being transmitted. All
distribution companies in ERCOT pay CenterPoint Houston the same rates and other
charges for transmission services. The transmission and distribution rates for
CenterPoint Houston have been in effect since January 1, 2002, when electric
competition began. This regulated delivery charge includes the transmission and
distribution rate (which includes costs for nuclear decommissioning and
municipal franchise fees), a system benefit fund fee imposed by the Texas
electric restructuring law, a transition charge associated

15

with securitization of regulatory assets and an excess mitigation credit imposed
by the Texas Utility Commission.

Natural Gas Distribution. In almost all communities in which CERC provides
natural gas distribution services, it operates under franchises, certificates or
licenses obtained from state and local authorities. The terms of the franchises,
with various expiration dates, typically range from 10 to 30 years, though
franchises in Arkansas are perpetual. None of CERC's material franchises expire
in the near term. CERC expects to be able to renew expiring franchises. In most
cases, franchises to provide natural gas utility services are not exclusive.

Substantially all of CERC's retail natural gas sales by its local
distribution divisions are subject to traditional cost-of-service regulation at
rates regulated by the relevant state public utility commissions and, in Texas,
by the Railroad Commission of Texas (Railroad Commission) and municipalities
CERC serves.

In 2004, the City of Houston, 28 other cities and the Railroad Commission
approved a settlement that increased Houston Gas' base rate and service charge
revenues by approximately $14 million annually.

In February 2004, the Louisiana Public Service Commission (LPSC) approved a
settlement that increased Southern Gas Operations' base rate and service charge
revenues in its South Louisiana Division by approximately $2 million annually.

In July 2004, Minnesota Gas filed an application for a general rate
increase of $22 million with the Minnesota Public Utilities Commission (MPUC).
Minnesota Gas and the Minnesota Department of Commerce have agreed to a
settlement of all issues, including an annualized increase in the amount of $9
million, subject to approval by the MPUC. A final decision on this rate relief
request is expected from the MPUC in the second quarter of 2005. Interim rates
of $17 million on an annualized basis became effective on October 1, 2004,
subject to refund.

In July 2004, the LPSC approved a settlement that increased Southern Gas
Operations' base rate and service charge revenues in its North Louisiana
Division by approximately $7 million annually.

In October 2004, Southern Gas Operations filed an application for a general
rate increase of approximately $3 million with the Railroad Commission for rate
relief in the unincorporated areas of its Beaumont, East Texas and South Texas
Divisions. The Railroad Commission staff has begun its review of the request,
and a decision is anticipated in April 2005.

In November 2004, Southern Gas Operations filed an application for a
general rate increase of approximately $34 million with the Arkansas Public
Service Commission (APSC). The APSC staff has begun its review of the request,
and a decision is anticipated in the second half of 2005.

In December 2004, the OCC approved a settlement that increased Southern Gas
Operations' base rate and service charge revenues in Oklahoma by approximately
$3 million annually.

DEPARTMENT OF TRANSPORTATION

In December 2002, Congress enacted the Pipeline Safety Improvement Act of
2002 (the Act). This legislation applies to our interstate pipelines as well as
our intrastate pipelines and local distribution companies. The legislation
imposes several requirements related to ensuring pipeline safety and integrity.
It requires pipeline and distribution companies to assess the integrity of their
pipeline transmission facilities in areas of high population concentration or
High Consequence Areas (HCA). The legislation further requires companies to
perform remediation activities, in accordance with the requirements of the
legislation, over a 10-year period.

In December 2003, the Department of Transportation Office of Pipeline
Safety issued the final regulations to implement the Act. These regulations
became effective on February 14, 2004 and provided guidance on, among other
things, the areas that should be classified as HCA. Our interstate pipelines
developed and implemented a written pipeline integrity management program in
2004, meeting the Depart-

16

ment of Transportation Office of Pipeline Safety requirement of having the
program in place by December 17, 2004.

Our interstate and intrastate pipelines and our natural gas distribution
companies anticipate that compliance with the new regulations will require
increases in both capital and operating cost. The level of expenditures required
to comply with these regulations will be dependent on several factors, including
the age of the facility, the pressures at which the facility operates and the
number of facilities deemed to be located in areas designated as HCA. Based on
our interpretation of the rules and preliminary technical reviews, we anticipate
compliance will require average annual expenditures of approximately $15 to $20
million during the initial 10-year period.

ENVIRONMENTAL MATTERS

Our operations are subject to stringent and complex laws and regulations
pertaining to health, safety and the environment. As an owner or operator of
natural gas pipelines, gas gathering and processing systems, and electric
transmission and distribution systems we must comply with these laws and
regulations at the federal, state and local levels. These laws and regulations
can restrict or impact our business activities in many ways, such as:

- restricting the way we can handle or dispose of our wastes;

- limiting or prohibiting construction activities in sensitive areas such
as wetlands, coastal regions, or areas inhabited by endangered species;

- requiring remedial action to mitigate pollution conditions caused by our
operations, or attributable to former operations; and

- enjoining the operations of facilities deemed in non-compliance with
permits issued pursuant to such environmental laws and regulations.

In order to comply with these requirements, we may need to spend
substantial amounts and devote other resources from time to time to:

- construct or acquire new equipment;

- acquire permits for facility operations;

- modify or replace existing and proposed equipment; and

- clean up or decommission waste disposal areas, fuel storage and
management facilities and other locations and facilities.

Failure to comply with these laws and regulations may trigger a variety of
administrative, civil and criminal enforcement measures, including the
assessment of monetary penalties, the imposition of remedial requirements, and
the issuance of orders enjoining future operations. Certain environmental
statutes impose strict, joint and several liability for costs required to clean
up and restore sites where hazardous substances have been disposed or otherwise
released. Moreover, it is not uncommon for neighboring landowners and other
third parties to file claims for personal injury and property damage allegedly
caused by the release of hazardous substances or other waste products into the
environment.

The trend in environmental regulation is to place more restrictions and
limitations on activities that may affect the environment, and thus there can be
no assurance as to the amount or timing of future expenditures for environmental
compliance or remediation, and actual future expenditures may be different from
the amounts we currently anticipate. We try to anticipate future regulatory
requirements that might be imposed and plan accordingly to remain in compliance
with changing environmental laws and regulations and to minimize the costs of
such compliance.

We do not believe that compliance with federal, state or local
environmental laws and regulations will have a material adverse effect on our
business, financial position or results of operations. In addition, we

17

believe that the various environmental remediation activities in which we are
presently engaged will not materially interrupt or diminish our operational
ability. We cannot assure you, however, that future events, such as changes in
existing laws, the promulgation of new laws, or the development or discovery of
new facts or conditions will not cause us to incur significant costs. The
following is a discussion of all material environmental and safety laws and
regulations that relate to our operations. We believe that we are in substantial
compliance with all of these environmental laws and regulations.

AIR EMISSIONS

Our operations are subject to the federal Clean Air Act and comparable
state laws and regulations. These laws and regulations regulate emissions of air
pollutants from various industrial sources, including our processing plants and
compressor stations, and also impose various monitoring and reporting
requirements. Such laws and regulations may require that we obtain pre-approval
for the construction or modification of certain projects or facilities expected
to produce air emissions or result in the increase of existing air emissions,
obtain and strictly comply with air permits containing various emissions and
operational limitations, or utilize specific emission control technologies to
limit emissions. Our failure to comply with these requirements could subject us
to monetary penalties, injunctions, conditions or restrictions on operations,
and potentially criminal enforcement actions. We may be required to incur
certain capital expenditures in the future for air pollution control equipment
in connection with obtaining and maintaining operating permits and approvals for
air emissions. We believe, however, that our operations will not be materially
adversely affected by such requirements, and the requirements are not expected
to be any more burdensome to us than to any other similarly situated companies.

WATER DISCHARGES

Our operations are subject to the Federal Water Pollution Control Act of
1972, as amended, also known as the Clean Water Act, and analogous state laws
and regulations. These laws and regulations impose detailed requirements and
strict controls regarding the discharge of pollutants into waters of the United
States. The unpermitted discharge of pollutants, including discharges resulting
from a spill or leak incident, is prohibited. The Clean Water Act and
regulations implemented thereunder also prohibit discharges of dredged and fill
material in wetlands and other waters of the United States unless authorized by
an appropriately issued permit. Any unpermitted release of petroleum or other
pollutants from our pipelines or facilities could result in fines or penalties
as well as significant remedial obligations.

HAZARDOUS WASTE

Our operations generate wastes, including some hazardous wastes, that are
subject to the federal Resource Conservation and Recovery Act (RCRA), and
comparable state laws, which impose detailed requirements for the handling,
storage, treatment and disposal of hazardous and solid waste. RCRA currently
exempts many natural gas gathering and field processing wastes from
classification as hazardous waste. Specifically, RCRA excludes from the
definition of hazardous waste produced waters and other wastes associated with
the exploration, development, or production of crude oil and natural gas.
However, these oil and gas exploration and production wastes are still regulated
under state law and the less stringent non-hazardous waste requirements of RCRA.
Moreover, ordinary industrial wastes such as paint wastes, waste solvents,
laboratory wastes, and waste compressor oils may be regulated as hazardous
waste. The transportation of natural gas in pipelines may also generate some
hazardous wastes that are subject to RCRA or comparable state law requirements.

LIABILITY FOR REMEDIATION

The Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended (CERCLA), also known as "Superfund," and comparable state laws
impose liability, without regard to fault or the legality of the original
conduct, on certain classes of persons responsible for the release of hazardous
substances into the environment. Such classes of persons include the current and
past owners or operators of sites where a hazardous substance was released, and
companies that disposed or arranged for disposal of

18

hazardous substances at offsite locations such as landfills. Although petroleum
as well as natural gas is excluded from CERCLA's definition of "hazardous
substance," in the course of our ordinary operations we generate wastes that may
fall within the definition of a "hazardous substance." CERCLA authorizes the
United States Environmental Protection Agency (EPA) and, in some cases, third
parties to take actions in response to threats to the public health or the
environment and to seek to recover from the responsible classes of persons the
costs they incur. Under CERCLA, we could be subject to joint and several
liability for the costs of cleaning up and restoring sites where hazardous
substances have been released, for damages to natural resources, and for the
costs of certain health studies.

LIABILITY FOR PREEXISTING CONDITIONS

Hydrocarbon Contamination. CERC Corp. and certain of its subsidiaries are
among the defendants in lawsuits filed beginning in August 2001 in Caddo Parish
and Bossier Parish, Louisiana. The suits allege that, at some unspecified date
prior to 1985, the defendants allowed or caused hydrocarbon or chemical
contamination of the Wilcox Aquifer, which lies beneath property owned or leased
by certain of the defendants and which is the sole or primary drinking water
aquifer in the area. The primary source of the contamination is alleged by the
plaintiffs to be a gas processing facility in Haughton, Bossier Parish,
Louisiana known as the "Sligo Facility," which was formerly operated by a
predecessor in interest of CERC Corp. This facility was purportedly used for
gathering natural gas from surrounding wells, separating gasoline and
hydrocarbons from the natural gas for marketing, and transmission of natural gas
for distribution. Beginning about 1985, the predecessors of certain CERC Corp.
defendants engaged in a voluntary remediation of any subsurface contamination of
the groundwater below the property they owned or leased. This work has been done
in conjunction with and under the direction of the Louisiana Department of
Environmental Quality. The plaintiffs seek monetary damages for alleged damage
to the aquifer underlying their property, unspecified alleged personal injuries,
alleged fear of cancer, alleged property damage or diminution of value of their
property, and, in addition, seek damages for trespass, punitive, and exemplary
damages. We believe the ultimate cost associated with resolving this matter will
not have a material impact on our financial condition or results of operations
or that of CERC.

Manufactured Gas Plant Sites. CERC and its predecessors operated
manufactured gas plants (MGP) in the past. In Minnesota, CERC has completed
remediation on two sites, other than ongoing monitoring and water treatment.
There are five remaining sites in CERC's Minnesota service territory. CERC
believes that it has no liability with respect to two of these sites.

At December 31, 2004, CERC had accrued $18 million for remediation of
certain Minnesota sites. At December 31, 2004, the estimated range of possible
remediation costs for these sites was $7 million to $42 million based on
remediation continuing for 30 to 50 years. The cost estimates are based on
studies of a site or industry average costs for remediation of sites of similar
size. The actual remediation costs will be dependent upon the number of sites to
be remediated, the participation of other potentially responsible parties (PRP),
if any, and the remediation methods used. CERC has utilized an environmental
expense tracker mechanism in its rates in Minnesota to recover estimated costs
in excess of insurance recovery. As of December 31, 2004, CERC has collected or
accrued $13 million from insurance companies and ratepayers to be used for
future environmental remediation.

In addition to the Minnesota sites, the EPA and other regulators have
investigated MGP sites that were owned or operated by CERC or may have been
owned or operated by one of its former affiliates. CERC has not been named by
these agencies as a PRP for any of those sites. CERC has been named as a
defendant in lawsuits under which contribution is sought for the cost to
remediate former MGP sites based on the previous ownership of such sites by
former affiliates of CERC or its divisions. We are investigating details
regarding these sites and the range of environmental expenditures for potential
remediation. However, CERC believes it is not liable as a former owner or
operator of those sites under CERCLA and applicable state statutes, and is
vigorously contesting those suits.

Mercury Contamination. Our pipeline and distribution operations have in
the past employed elemental mercury in measuring and regulating equipment. It is
possible that small amounts of mercury may have been

19

spilled in the course of normal maintenance and replacement operations and that
these spills may have contaminated the immediate area with elemental mercury.
This type of contamination has been found by us at some sites in the past, and
we have conducted remediation at these sites. It is possible that other
contaminated sites may exist and that remediation costs may be incurred for
these sites. Although the total amount of these costs cannot be known at this
time, based on our experience and that of others in the natural gas industry to
date and on the current regulations regarding remediation of these sites, we
believe that the costs of any remediation of these sites will not be material to
our financial condition, results of operations or cash flows.

Other Environmental. From time to time, we have received notices from
regulatory authorities or others regarding our status as a PRP in connection
with sites found to require remediation due to the presence of environmental
contaminants. Although their ultimate outcome cannot be predicted at this time,
we do not believe, based on our experience to date, that these matters, either
individually or in the aggregate, will have a material adverse effect on our
financial condition, results of operations or cash flows.

Asbestos. A number of facilities that we own contain significant amounts
of asbestos insulation and other asbestos-containing materials. We or our
subsidiaries have been named, along with numerous others, as a defendant in
lawsuits filed by a large number of individuals who claim injury due to exposure
to asbestos. Most claimants in such litigation have been workers who
participated in construction of various industrial facilities, including power
plants. Some of the claimants have worked at locations we own, but most existing
claims relate to facilities previously owned by us but currently owned by Texas
Genco LLC. We anticipate that additional claims like those received may be
asserted in the future. Under the terms of the separation agreement between us
and Texas Genco, ultimate financial responsibility for uninsured losses relating
to these claims has been assumed by Texas Genco, but under the terms of our
agreement to sell Texas Genco to Texas Genco LLC, we have agreed to continue to
defend such claims to the extent they are covered by insurance we maintain,
subject to reimbursement of the costs of such defense from Texas Genco LLC.
Although their ultimate outcome cannot be predicted at this time, we intend to
continue vigorously contesting claims that we do not consider to have merit and
do not believe, based on our experience to date, that these matters, either
individually or in the aggregate, will have a material adverse effect on our
financial condition, results of operations or cash flows.

Nuclear Regulatory Commission. Texas Genco is subject to regulation by the
NRC with respect to the operation of the South Texas Project nuclear facility.
This regulation involves testing, evaluation and modification of all aspects of
plant operation in light of NRC safety and environmental requirements.
Continuous demonstrations to the NRC that plant operations meet applicable
requirements are also required. The NRC has the ultimate authority to determine
whether any nuclear-powered generating unit may operate.

Texas Genco and the other owners of the South Texas Project are required by
NRC regulations to estimate from time to time the amounts required to
decommission that nuclear generating facility and are required to maintain funds
to satisfy that obligation when the plant ultimately is decommissioned.
CenterPoint Houston currently collects through its electric rates amounts
calculated to provide sufficient funds at the time of decommissioning to
discharge these obligations. Funds collected are deposited into nuclear
decommissioning trusts. The beneficial ownership of the nuclear decommissioning
trusts is held by Texas Genco, as a licensee of the facility. While current
funding levels exceed NRC minimum requirements, no assurance can be given that
the amounts held in trust will be adequate to cover the actual decommissioning
costs of the South Texas Project. Such costs may vary because of changes in the
assumed date of decommissioning and changes in regulatory requirements,
technology and costs of labor, materials and waste burial. In the event that
funds from the trust are inadequate to decommission the facilities, CenterPoint
Houston will be required by the transaction agreement with Texas Genco LLC to
collect through rates or other authorized charges all additional amounts
required to fund Texas Genco's obligations relating to the decommissioning of
the South Texas Project.

Nuclear Waste. Under the U.S. Nuclear Waste Policy Act of 1982, the
federal government was to create a federal repository for spent nuclear fuel
produced by nuclear plants like the South Texas Project. Also

20

pursuant to that legislation a special assessment has been imposed on those
nuclear plants to pay for the facility. Consistent with the Act, owners of
nuclear facilities, including Texas Genco and the other owners of the South
Texas Project, entered into contracts setting out the obligations of the owners
and U.S. Department of Energy (DOE). Since 1998, DOE has been in default on its
obligations to begin moving spent nuclear fuel from reactors to the federal
repository (which still is not completed). In January 2004, Texas Genco and the
other owners of the South Texas Project, along with owners of other nuclear
plants, filed a breach of contract suit against DOE in order to protect against
the running of a statute of limitations.

In conjunction with Texas Genco's 30.8% ownership interest in the South
Texas Project, Texas Genco bears a proportionate share of responsibility
associated with the proper handling and disposal of high-level radioactive waste
(spent nuclear fuel) as well as low-level radioactive waste. The South Texas
Project has on-site storage facilities with the capability to store the spent
nuclear fuel, and currently does store such waste on-site, per the requirements
established by the NRC. There is adequate on-site storage at the South Texas
Project for high-level radioactive waste over the licensed life of the two
generating units.

The 1980 Federal Low-Level Radioactive Waste Policy Act directed states to
assume responsibility for the disposal of low-level radioactive waste generated
within their borders. Texas does not currently have any waste disposal locations
available for low-level radioactive waste. Private waste management companies
are seeking to develop sites in Texas but Texas Genco cannot predict when such a
site may be available. South Carolina and New Mexico operate low-level
radioactive waste disposal sites that accept low-level radioactive waste from
Texas. The South Texas Project disposes of its low-level radioactive waste in
both South Carolina and New Mexico under short-term annual agreements. In the
event that both South Carolina and New Mexico stop accepting waste in the
future, and until a Texas site is functional, the South Texas Project has
storage for at least five years of low-level radioactive waste generated by the
project.

EMPLOYEES

As of December 31, 2004, we had 9,093 full-time employees. The following
table sets forth the number of our employees by business segment:

As of December 31, 2004, approximately 31% of the Company's employees are
subject to collective bargaining agreements. Four of these agreements, covering
approximately 9% of the Company's employees, have expired or will expire in
2005.

DAVID M. MCCLANAHAN has been President and Chief Executive Officer and a
director of CenterPoint Energy since September 2002. He served as Vice Chairman
of Reliant Energy from October 2000 to September 2002 and as President and Chief
Operating Office of Reliant Energy's Delivery Group from April 1999 to September
2002. He also served as the President and Chief Operating Officer of Reliant
Energy HL&P, the electric utility division of Reliant Energy, from 1997 to 1999.
He has served in various executive capacities with CenterPoint Energy since
1986. He previously served as Chairman of the Board of Directors of ERCOT and
Chairman of the Board of the University of St. Thomas in Houston. He currently
serves on the boards of the Edison Electric Institute and the American Gas
Association.

SCOTT E. ROZZELL has served as Executive Vice President, General Counsel
and Corporate Secretary of CenterPoint Energy since September 2002. He served as
Executive Vice President and General Counsel of the Delivery Group of Reliant
Energy from March 2001 to September 2002. Before joining CenterPoint Energy in
2001, Mr. Rozzell was a senior partner in the law firm of Baker Botts L.L.P. He
currently serves as Vice-Chair of the Association of Electric Companies of
Texas.

GARY L. WHITLOCK has served as Executive Vice President and Chief Financial
Officer of CenterPoint Energy since September 2002. He served as Executive Vice
President and Chief Financial Officer of the Delivery Group of Reliant Energy
from July 2001 to September 2002. Mr. Whitlock served as the Vice President,
Finance and Chief Financial Officer of Dow AgroSciences, a subsidiary of The Dow
Chemical Company, from 1998 to 2001.

JAMES S. BRIAN has served as Senior Vice President and Chief Accounting
Officer of CenterPoint Energy since August 2002. He served as Senior Vice
President, Finance and Administration of the Delivery Group of Reliant Energy
from 1999 to August 2002, and as Vice President and Chief Financial Officer of
Reliant Energy HL&P from 1997 to 1999. Mr. Brian has served in various executive
capacities with CenterPoint Energy since 1983.

BYRON R. KELLEY has served as Senior Vice President and Group President and
Chief Operating Officer of CenterPoint Energy Pipelines and Field Services since
June 2004, having previously served as President and Chief Operating Officer of
CenterPoint Energy Pipelines and Field Services since May 2003. Prior to joining
CenterPoint Energy he served as President of El Paso International, a subsidiary
of El Paso Corporation, from January 2001 to August 2002 and as Executive Vice
President of Development, Operations and Engineering from March 1999 through
December 2000. He currently serves on the Board of Directors of the Interstate
Natural Gas Association of America.

22

THOMAS R. STANDISH has served as Senior Vice President and Group President
and Chief Operating Officer of CenterPoint Houston since June 2004, having
previously served as President and Chief Operating Officer of CenterPoint
Houston since August 2002. He served as President and Chief Operating Officer
for both electricity and natural gas for Reliant Energy's Houston area from 1999
until August 2002, and as Senior Vice President of Distribution Customer Service
for Reliant Energy HL&P from 1997 to 1999. Mr. Standish has served in various
executive capacities with CenterPoint Energy since 1993. He currently serves on
the Board of Directors of ERCOT.

CENTERPOINT HOUSTON MAY NOT BE SUCCESSFUL IN TIMELY RECOVERING THE FULL VALUE

OF ITS TRUE-UP COMPONENTS.

On March 31, 2004, CenterPoint Houston filed the final true-up application
required by the Texas electric restructuring law with the Texas Utility
Commission. CenterPoint Houston's requested true-up balance was $3.7 billion,
excluding interest and net of the retail clawback payable to CenterPoint Houston
by a former affiliate. In December 2004, the Texas Utility Commission approved a
final order in CenterPoint Houston's true-up proceeding authorizing CenterPoint
Houston to recover $2.3 billion including interest through August 31, 2004,
subject to adjustments to reflect the benefit of certain deferred taxes and the
accrual of interest and payment of excess mitigation credits after August 31,
2004. In January 2005, we appealed certain aspects of the final order seeking to
increase the true-up balance ultimately recovered by CenterPoint Houston. Other
parties have also appealed the order, seeking to reduce the amount authorized
for CenterPoint Houston's recovery. Although we believe we have meritorious
arguments and that the other parties' appeals are without merit, no prediction
can be made as to the ultimate outcome or timing of such appeals. A failure by
CenterPoint Houston to recover the full value of its true-up components may have
an adverse impact on CenterPoint Houston's results of operations, financial
condition and cash flows.

CENTERPOINT HOUSTON'S RECEIVABLES ARE CONCENTRATED IN A SMALL NUMBER OF RETAIL

ELECTRIC PROVIDERS.

CenterPoint Houston's receivables from the distribution of electricity are
collected from retail electric providers that supply the electricity CenterPoint
Houston distributes to their customers. Currently, CenterPoint Houston does
business with approximately 56 retail electric providers. Adverse economic
conditions, structural problems in the market served by ERCOT or financial
difficulties of one or more retail electric providers could impair the ability
of these retail providers to pay for CenterPoint Houston's services or could
cause them to delay such payments. CenterPoint Houston depends on these retail
electric providers to remit payments on a timely basis. Any delay or default in
payment could adversely affect CenterPoint Houston's cash flows, financial
condition and results of operations. RRI, through its subsidiaries, is
CenterPoint Houston's largest customer. Approximately 69% of CenterPoint
Houston's $102 million in billed receivables from retail electric providers at
December 31, 2004 was owed by subsidiaries of RRI.

RATE REGULATION OF CENTERPOINT HOUSTON'S BUSINESS MAY DELAY OR DENY
CENTERPOINT HOUSTON'S ABILITY TO EARN A REASONABLE RETURN AND FULLY RECOVER
ITS COSTS.

CenterPoint Houston's rates are regulated by certain municipalities and the
Texas Utility Commission based on an analysis of its invested capital and its
expenses incurred in a test year. Thus, the rates that CenterPoint Houston is
allowed to charge may not match its expenses at any given time. While rate
regulation in Texas is premised on providing an opportunity to recover
reasonable and necessary operating expenses and to earn a reasonable return on
its invested capital, there can be no assurance that the regulatory process in
which rates are determined will always result in rates that will produce full
recovery of CenterPoint Houston's costs and enable CenterPoint Houston to earn a
reasonable return on its invested capital.

DISRUPTIONS AT POWER GENERATION FACILITIES OWNED BY THIRD PARTIES COULD
INTERRUPT CENTERPOINT HOUSTON'S SALES OF TRANSMISSION AND DISTRIBUTION
SERVICES.

CenterPoint Houston depends on power generation facilities owned by third
parties to provide retail electric providers with electric power which it
transmits and distributes to customers of the retail electric providers.
CenterPoint Houston does not own or operate any power generation facilities. If
power generation is disrupted or if power generation capacity is inadequate,
CenterPoint Houston's services may be interrupted, and its results of
operations, financial condition and cash flows may be adversely affected.

24

CENTERPOINT HOUSTON'S REVENUES AND RESULTS OF OPERATIONS ARE SEASONAL.

A significant portion of CenterPoint Houston's revenues is derived from
rates that it collects from each retail electric provider based on the amount of
electricity it distributes on behalf of such retail electric provider. Thus,
CenterPoint Houston's revenues and results of operations are subject to
seasonality, weather conditions and other changes in electricity usage, with
revenues being higher during the warmer months.

RATE REGULATION OF CERC'S BUSINESS MAY DELAY OR DENY CERC'S ABILITY TO EARN A

REASONABLE RETURN AND FULLY RECOVER ITS COSTS.

CERC's rates for its local distribution companies are regulated by certain
municipalities and state commissions based on an analysis of its invested
capital and its expenses incurred in a test year. Thus, the rates that CERC is
allowed to charge may not match its expenses at any given time. While rate
regulation in the applicable jurisdictions is, generally, premised on providing
an opportunity to recover reasonable and necessary operating expenses and to
earn a reasonable return on invested capital, there can be no assurance that the
regulatory process in which rates are determined will always result in rates
that will produce full recovery of CERC's costs and enable CERC to earn a
reasonable return on its invested capital.

CERC'S BUSINESSES MUST COMPETE WITH ALTERNATIVE ENERGY SOURCES, AND ITS
PIPELINES AND GATHERING BUSINESSES MUST COMPETE DIRECTLY WITH OTHERS IN THE
TRANSPORTATION, STORAGE, GATHERING, TREATING AND PROCESSING OF NATURAL GAS.

CERC competes primarily with alternate energy sources such as electricity
and other fuel sources. In some areas, intrastate pipelines, other natural gas
distributors and marketers also compete directly with CERC for natural gas sales
to end-users. In addition, as a result of federal regulatory changes affecting
interstate pipelines, natural gas marketers operating on these pipelines may be
able to bypass CERC's facilities and market, sell and/or transport natural gas
directly to commercial and industrial customers. Any reduction in the amount of
natural gas marketed, sold or transported by CERC as a result of competition may
have an adverse impact on CERC's results of operations, financial condition and
cash flows.

CERC's two interstate pipelines and its gathering systems compete with
other interstate and intrastate pipelines and gathering systems in the
transportation and storage of natural gas. The principal elements of competition
are rates, terms of service, and flexibility and reliability of service. They
also compete indirectly with other forms of energy, including electricity, coal
and fuel oils. The primary competitive factor is price. The actions of CERC's
competitors could lead to lower prices, which may have an adverse impact on
CERC's results of operations, financial condition and cash flows.

CERC'S NATURAL GAS DISTRIBUTION BUSINESS IS SUBJECT TO FLUCTUATIONS IN NATURAL

GAS PRICING LEVELS.

CERC is subject to risk associated with price movements of natural gas.
Movements in natural gas prices might affect CERC's ability to collect balances
due from its customers and, on the regulated side, could create the potential
for uncollectible accounts expense to exceed the recoverable levels built into
CERC's tariff rates. In addition, a sustained period of high natural gas prices
could apply downward demand pressure on natural gas consumption in the areas in
which CERC operates and increase the risk that CERC's suppliers or customers
fail or are unable to meet their obligations. Additionally, increasing gas
prices could create the need for CERC to provide collateral in order to purchase
gas.

IF CERC WERE TO FAIL TO EXTEND A CONTRACT WITH ONE OF ITS SIGNIFICANT PIPELINE

CUSTOMERS, THERE COULD BE AN ADVERSE IMPACT ON ITS OPERATIONS.

CERC's contract with Laclede Gas Company, one of its pipeline customers, is
currently scheduled to expire in 2007. To the extent the pipeline is unable to
extend this contract or the contract is renegotiated at rates substantially less
than the rates provided in the current contract, there could be an adverse
effect on CERC's results of operations, financial condition and cash flows.

25

A DECLINE IN CERC'S CREDIT RATING COULD RESULT IN CERC'S HAVING TO PROVIDE

COLLATERAL IN ORDER TO PURCHASE GAS.

If CERC's credit rating were to decline, it might be required to post cash
collateral in order to purchase natural gas. If a credit rating downgrade and
the resultant cash collateral requirement were to occur at a time when CERC was
experiencing significant working capital requirements or otherwise lacked
liquidity, CERC might be unable to obtain the necessary natural gas to meet its
contractual distribution obligations, and its results of operations, financial
condition and cash flows would be adversely affected.

CERC'S INTERSTATE PIPELINES' AND NATURAL GAS GATHERING AND PROCESSING
BUSINESS' REVENUES AND RESULTS OF OPERATIONS ARE SUBJECT TO FLUCTUATIONS IN
THE SUPPLY OF GAS.

CERC's interstate pipelines and natural gas gathering and processing
business largely rely on gas sourced in the various supply basins located in the
Midcontinent region of the United States. To the extent the availability of this
supply is substantially reduced, it could have an adverse effect on CERC's
results of operations, financial condition and cash flows.

CERC'S REVENUES AND RESULTS OF OPERATIONS ARE SEASONAL.

A substantial portion of CERC's revenues is derived from natural gas sales
and transportation. Thus, CERC's revenues and results of operations are subject
to seasonality, weather conditions and other changes in natural gas usage, with
revenues being higher during the winter months.

RISK FACTORS AFFECTING TEXAS GENCO

Until the closing of the merger of Texas Genco with a subsidiary of Texas
Genco LLC, which is expected to occur during the first half of 2005 following
receipt of approval from the NRC, Texas Genco's operations at the South Texas
Project nuclear generating station will continue to be a part of our business.
The application for approval is currently pending before the NRC.

TEXAS GENCO HAS SOLD FORWARD A SUBSTANTIAL PORTION OF ITS SHARE OF THE POWER
GENERATED BY THE SOUTH TEXAS PROJECT TO TEXAS GENCO LLC. ACCORDINGLY, TEXAS
GENCO'S RESULTS OF OPERATIONS, FINANCIAL CONDITION AND CASH FLOWS COULD BE
ADVERSELY AFFECTED IF TEXAS GENCO LLC FAILS TO MEET ITS PURCHASE OBLIGATIONS.

In connection with the sale of Texas Genco's fossil generation assets to
Texas Genco LLC, Genco LP entered into a power purchase and sale agreement with
Texas Genco LLC, which we refer to as the back-to-back power purchase agreement.
Under this agreement, Genco LP has sold forward a substantial portion of Genco
LP's share of the energy from the South Texas Project through December 31, 2008.
In the event Texas Genco LLC fails to meet its purchase obligations under the
back-to-back power purchase agreement, Texas Genco's results of operations,
financial condition and cash flows could be adversely affected. As of December
31, 2004, Texas Genco LLC's securities ratings were below investment grade.

TEXAS GENCO IS SUBJECT TO OPERATIONAL AND MARKET RISKS ASSOCIATED WITH ITS

FUTURE CAPACITY AUCTIONS AND OTHER FUTURE SALES.

Although Texas Genco has already sold forward a substantial portion of its
share of the energy from the South Texas Project, it currently remains obligated
to sell 15% of its share of installed generation capacity from the South Texas
Project and related ancillary services pursuant to PUC-mandated auctions. In
these auctions, Texas Genco will be required to sell firm entitlements on a
forward basis to capacity and ancillary services dispatched within specified
operational constraints. In addition to its capacity auctions, Texas Genco may
from time to time sell any excess capacity or energy generated by the South
Texas Project forward on a firm or interruptible basis. Accordingly,
unanticipated unit outages or other problems with the South Texas Project could
result in Texas Genco's firm capacity and ancillary services commitments under
its future capacity auctions or other future sales exceeding its available
generation capacity. As a result, an unexpected outage at the South Texas
Project could require Texas Genco to obtain replacement power from third parties

26

in the open market in order to satisfy its obligations. The cost of any such
replacement power would likely exceed the cost of generating power at the South
Texas Project.

Under the Texas electric restructuring law, Texas Genco and other power
generators in Texas are not subject to traditional cost-based regulation and,
therefore, may sell electric generation capacity, energy and ancillary services
to wholesale purchasers at prices determined by the market. As a result, Texas
Genco is not guaranteed any rate of return on its capital investments through
mandated rates, and its revenues and results of operations associated with
future sales depend, in part, upon prevailing market prices for electricity in
the ERCOT market. Market prices for electricity, generation capacity, energy and
ancillary services may fluctuate substantially. The gross margins generated by
Texas Genco's future sales will be directly impacted by natural gas prices.
Because the South Texas Project's fuel costs are largely fixed under contracts,
they are generally not subject to significant daily and monthly fluctuations.
However, the market price for power in the ERCOT market is directly affected by
the price of natural gas because natural gas is the marginal fuel for facilities
serving the ERCOT market during most hours. As a result, the price customers are
willing to pay for entitlements to Texas Genco's future capacity not sold
forward under the back-to-back power purchase agreement will generally rise and
fall with natural gas prices.

Market prices in the ERCOT market may also fluctuate substantially due to
other factors. Such fluctuations may occur over relatively short periods of
time. Volatility in market prices may result from:

- oversupply or undersupply of generation capacity;

- power transmission or fuel transportation constraints or inefficiencies;

- weather conditions;

- seasonality;

- availability and market prices for natural gas or other fuels;

- changes in electricity usage;

- additional supplies of electricity from existing competitors or new
market entrants as a result of the development of new generation
facilities or additional transmission capacity;

- federal and state energy and environmental regulation and legislation.

IF THE SALE OF TEXAS GENCO TO TEXAS GENCO LLC IS NOT COMPLETED, TEXAS GENCO
MAY BE OBLIGATED TO PAY LIQUIDATED DAMAGES TO TEXAS GENCO LLC RELATING TO
COSTS INCURRED BY TEXAS GENCO LLC AS A RESULT OF ENERGY FROM THE SOUTH TEXAS
PROJECT BEING UNAVAILABLE AND THE PRICING OF ENERGY TEXAS GENCO SELLS UNDER
THE BACK-TO-BACK POWER PURCHASE AGREEMENT WILL BE REDUCED IN THE FUTURE.

During the period from December 15, 2004 until the closing of the sale of
Texas Genco to Texas Genco LLC, the price for the energy sold by Texas Genco
under the back-to-back power purchase agreement will be the weighted-average
price achieved by Texas Genco LLC on its firm forward sales in the South ERCOT
zone. However, in the event the sale does not close, Genco LP will be obligated
to pay Texas Genco LLC 50% of the economic cost (i.e. liquidated damages payable
to third parties or cost of cover) Texas Genco LLC incurs as a result of energy
from the South Texas Project being unavailable to meet the contract quantity
during the period from December 15, 2004 to the termination of the agreement
governing the sale of Texas Genco. In addition, after any termination of this
sale agreement, the pricing for the energy sold under the back-to-back power
purchase agreement will be 90% of such weighted-average price, with no
contingent payment for economic costs. The sale agreement may be terminated
under various circumstances, including a failure to close the second step of the
sale transaction by April 30, 2005 (which date may be extended by either party
for up to two consecutive 90-day periods if NRC approval has not yet been
obtained or is being

27

contested and all other closing conditions are capable of being satisfied). We
currently expect to obtain NRC approval in the first half of 2005.

THERE COULD BE A SIGNIFICANT DISRUPTION IN TEXAS GENCO'S OPERATIONS IF TEXAS

GENCO LLC FAILS TO PERFORM ITS OBLIGATIONS UNDER THE SERVICES AGREEMENT.

In connection with the sale of Texas Genco's fossil generation assets to
Texas Genco LLC, Genco LP entered into a services agreement with Texas Genco LLC
under which Texas Genco LLC has agreed to, among other things, provide energy
scheduling services to Genco LP, administer Genco LP's PUC-mandated capacity
auctions and administer Genco LP's energy sales transactions. In the event Texas
Genco LLC fails to perform its obligations under the services agreement or the
services agreement is terminated, Texas Genco will be required to engage another
service provider or develop the infrastructure to resume the functions being
performed by Texas Genco LLC under the services agreement. If Texas Genco is
unable to do so, there could be a significant disruption in its operations.

THE OPERATION OF THE SOUTH TEXAS PROJECT INVOLVES RISKS THAT COULD ADVERSELY

The South Texas Project is owned as a tenancy in common among Genco LP and
other co-owners. Each co-owner has an undivided ownership interest in the two
nuclear-fueled generating units and the electrical output from those units.
Genco LP currently owns a 30.8% interest in the South Texas Project and
currently bears a corresponding 30.8% share of the capital and operating costs
associated with the project. This interest is subject to increase by up to an
additional 25.2% pursuant to Texas Genco's exercise of its right of first
refusal as described under "Our Business -- Discontinued Operations -- Texas
Genco -- Right of First Refusal." This purchase may occur prior to the
completion of the sale of Texas Genco to Texas Genco LLC. Genco LP and the other
co-owners have organized the STP Nuclear Operating Company (STPNOC) to operate
and maintain the South Texas Project. STPNOC is managed by a board of directors
composed of one director appointed by each of the co-owners, along with the
chief executive officer of STPNOC. The ownership of an interest in and operation
of the South Texas Project are subject to various risks, any of which could
adversely affect Texas Genco's revenues, costs, results of operations, financial
condition and cash flows. These risks include:

- liability associated with the potential harmful effects on the
environment and human health resulting from the operation of nuclear
facilities and the storage, handling and disposal of radioactive
materials;

- limitations on the amounts and types of insurance commercially available
to cover losses that might arise in connection with nuclear operations;

- uncertainties with respect to the technological and financial aspects of
decommissioning nuclear plants at the end of their licensed lives;

- limitations that may be imposed by regulatory requirements, including,
among others, environmental standards;

- limitations imposed by the ERCOT ISO;

- governmental action, including on a preemptive basis;

28

- violations of permit limitations;

- operator error; and

- catastrophic events such as fires, hurricanes, explosions, floods,
terrorist attacks or other similar occurrences.

The South Texas Project may require significant capital expenditures to
keep it operating at high efficiency and to meet regulatory requirements and is
also likely to require periodic upgrading and improvement. Any unexpected
failure to produce power, including failure caused by breakdown or forced
outage, could result in increased costs of operations and reduced earnings.

THE POWER GENERATED BY THE SOUTH TEXAS PROJECT IS TRANSMITTED THROUGH POWER
TRANSMISSION AND DISTRIBUTION FACILITIES THAT TEXAS GENCO DOES NOT OWN OR
CONTROL. IF TRANSMISSION SERVICE IS DISRUPTED DUE TO A FORCE MAJEURE EVENT,
TEXAS GENCO LLC WILL NOT BE OBLIGATED TO PURCHASE POWER FROM GENCO LP UNDER
THE BACK-TO-BACK POWER PURCHASE AGREEMENT DURING THE COURSE OF SUCH OUTAGE.

The power generated by the South Texas Project is transmitted through
transmission and distribution facilities owned and operated by CenterPoint
Houston and by others. If transmission service is disrupted due to a force
majeure event, Texas Genco LLC will not be obligated to purchase power from
Genco LP under the back-to-back power purchase agreement during the course of
such outage, which would adversely impact Texas Genco's results of operations,
financial condition and cash flows.

TEXAS GENCO'S RESULTS OF OPERATIONS, FINANCIAL CONDITION AND CASH FLOWS COULD
BE ADVERSELY IMPACTED BY A DISRUPTION OF FUEL SUPPLIES FOR THE SOUTH TEXAS
PROJECT.

The South Texas Project satisfies its fuel supply requirements by acquiring
uranium concentrates, converting uranium concentrates into uranium hexafluoride,
enriching uranium hexafluoride, and fabricating nuclear fuel assemblies under a
number of contracts covering a portion of the fuel requirements of the South
Texas Project for uranium, conversion services, enrichment services and fuel
fabrication. Other than a fuel fabrication agreement that extends for the life
of the South Texas Project, these contracts have varying expiration dates, and
most are short to medium term (less than seven years). We believe that
sufficient capacity for nuclear fuel supplies and processing currently exists to
permit normal operations of the South Texas Project's nuclear powered generating
units, however, any disruption in fuel supplies or processing services could
adversely affect Texas Genco's results of operations, financial condition and
cash flows.

TEXAS GENCO'S OPERATIONS ALSO ARE SUBJECT TO EXTENSIVE REGULATION, INCLUDING
ENVIRONMENTAL REGULATIONS. IF TEXAS GENCO FAILS TO COMPLY WITH APPLICABLE
REGULATIONS OR TO OBTAIN OR MAINTAIN ANY NECESSARY GOVERNMENTAL PERMIT OR
APPROVAL, IT MAY BE SUBJECT TO CIVIL, ADMINISTRATIVE AND/OR CRIMINAL PENALTIES
THAT COULD ADVERSELY IMPACT ITS RESULTS OF OPERATIONS, FINANCIAL CONDITION AND
CASH FLOWS.

Texas Genco's operations are subject to complex and stringent energy,
environmental and other governmental laws and regulations. The acquisition,
ownership and operation of power generation facilities require numerous permits,
approvals and certificates from federal, state and local governmental agencies.
These facilities are subject to regulation by the Texas Utility Commission
regarding non-rate matters. Existing regulations may be revised or
reinterpreted, new laws and regulations may be adopted or become applicable to
Texas Genco or any of its generation facilities or future changes in laws and
regulations may have a detrimental effect on its business.

Operation of the South Texas Project is subject to regulation by the NRC.
This regulation involves testing, evaluation and modification of all aspects of
plant operation in light of NRC safety and environmental requirements.
Continuous demonstrations to the NRC that plant operations meet applicable
requirements are also required. The NRC has the ultimate authority to determine
whether any nuclear powered generating unit may operate. The NRC has broad
authority under federal law to impose licensing and safety-related requirements
for the operation of nuclear generation facilities. In the event of
non-compliance, the NRC has the authority to impose fines, shut down a unit, or
both, depending upon its assessment of the severity of the

29

situation, until compliance is achieved. Any revised safety requirements
promulgated by the NRC could necessitate substantial capital expenditures at
nuclear plants. In addition, although we have no reason to anticipate a serious
nuclear incident at the South Texas Project, if an incident were to occur, it
could have a material adverse effect on Texas Genco's results of operations,
financial condition and cash flows.

Water for certain of Texas Genco's facilities is obtained from public water
authorities. New or revised interpretations of existing agreements by those
authorities or changes in price or availability of water may have a detrimental
effect on Texas Genco's business.

Texas Genco's business is subject to extensive environmental regulation by
federal, state and local authorities. Texas Genco is required to comply with
numerous environmental laws and regulations and to obtain numerous governmental
permits in operating its facilities. Texas Genco may incur significant
additional costs to comply with these requirements. If Texas Genco were to fail
to comply with these requirements or with any other regulatory requirements that
apply to its operations, it could be subject to administrative, civil and/or
criminal liability and fines, and regulatory agencies could take other actions
seeking to curtail its operations. These liabilities or actions could adversely
impact its results of operations, financial condition and cash flows.

Existing environmental regulations could be revised or reinterpreted, new
laws and regulations could be adopted or become applicable to Texas Genco or its
facilities, and future changes in environmental laws and regulations could
occur, including potential regulatory and enforcement developments related to
air emissions. If any of these events were to occur, Texas Genco's business,
results of operations, financial condition and cash flows could be adversely
affected.

STPNOC may not be able to obtain or maintain from time to time all required
environmental regulatory approvals. If there is a delay in obtaining any
required environmental regulatory approvals or if STPNOC fails to obtain and
comply with them, it may not be able to operate the South Texas Project or it
may be required to incur additional costs. Texas Genco is generally responsible
for its proportionate share of on-site liabilities associated with the
environmental condition of the South Texas Project, regardless of when the
liabilities arose and whether the liabilities are known or unknown. These
liabilities may be substantial.

RISK FACTORS ASSOCIATED WITH OUR CONSOLIDATED FINANCIAL CONDITION

IF WE ARE UNABLE TO ARRANGE FUTURE FINANCINGS ON ACCEPTABLE TERMS, OUR ABILITY

TO REFINANCE EXISTING INDEBTEDNESS COULD BE LIMITED.

As of December 31, 2004, we had $9.0 billion of outstanding indebtedness on
a consolidated basis. As of March 7, 2005, approximately $1.9 billion principal
amount of this debt must be paid through 2006, excluding principal repayments of
approximately $101 million on transition bonds. The success of our future
financing efforts may depend, at least in part, on:

- the timing and amount of our recovery of the true-up components and our
ability to monetize our remaining interest in Texas Genco;

As of March 1, 2005, our CenterPoint Houston subsidiary had $3.3 billion
principal amount of general mortgage bonds outstanding and $253 million of first
mortgage bonds outstanding. It may issue additional general mortgage bonds on
the basis of retired bonds, 70% of property additions or cash deposited with the
trustee. Although approximately $500 million of additional first mortgage bonds
and general mortgage bonds could be issued on the basis of retired bonds and 70%
of property additions as of December 31, 2004, CenterPoint Houston has agreed
under the $1.3 billion collateralized term loan maturing in November 2005 to not
issue, subject to certain exceptions, more than $200 million of any incremental
secured or unsecured debt. In addition, CenterPoint Houston is contractually
prohibited, subject to certain exceptions, from issuing additional first
mortgage bonds. CenterPoint Houston's $1.3 billion credit facility requires that
proceeds from the issuance of transition bonds and certain new net indebtedness
for borrowed money issued by CenterPoint Houston in excess of $200 million be
used to repay borrowings under such facility.

Our capital structure and liquidity will be affected significantly by the
securitization of approximately $1.8 billion of costs authorized for recovery in
our proceeding regarding the transition to competitive retail markets in Texas.
In addition, we will receive an additional $700 million from the sale of Texas
Genco and its remaining operations, which is scheduled to occur in the first
half of 2005 but remains subject to various conditions, including approval of
the NRC.

Our current credit ratings are discussed in "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Future Sources and Uses of Cash -- Impact on Liquidity of a
Downgrade in Credit Ratings" in Item 7 of Part II of this report. We cannot
assure you that these credit ratings will remain in effect for any given period
of time or that one or more of these ratings will not be lowered or withdrawn
entirely by a rating agency. We note that these credit ratings are not
recommendations to buy, sell or hold our securities. Each rating should be
evaluated independently of any other rating. Any future reduction or withdrawal
of one or more of our credit ratings could have a material adverse impact on our
ability to access capital on acceptable terms.

IF THE SALE OF CENTERPOINT ENERGY'S INTEREST IN TEXAS GENCO TO TEXAS GENCO LLC
DOES NOT CLOSE, CENTERPOINT ENERGY MAY PURSUE OTHER MEANS FOR MONETIZING ITS
REMAINING INTEREST IN TEXAS GENCO AND NO ASSURANCE CAN BE GIVEN THAT SUCH
EFFORTS WOULD BE SUCCESSFUL.

On December 15, 2004, Texas Genco completed the sale of its fossil
generation assets (coal, lignite and gas-fired plants) to Texas Genco LLC for
$2.813 billion in cash, of which $2.231 billion was distributed to CenterPoint
Energy. The sale was part of the first step of the transaction previously
announced in July 2004 in which Texas Genco LLC (formerly known as GC Power
Acquisition LLC), an entity owned in equal parts by affiliates of The Blackstone
Group, Hellman & Friedman LLC, Kohlberg Kravis Roberts & Co. L.P. and Texas
Pacific Group, agreed to acquire Texas Genco for approximately $3.65 billion in
cash. The second step of the transaction, in which Texas Genco is expected to
merge with a subsidiary of Texas Genco LLC in exchange for an additional cash
payment to CenterPoint Energy of $700 million, is expected to close during the
first half of 2005 following receipt of approval from the NRC. The closing of
the second step of the overall sale transaction is subject to various closing
conditions, including receipt of approval from the NRC. If the conditions are
not satisfied and the second step does not close, CenterPoint Energy will not
receive the $700 million it currently expects Texas Genco LLC to pay as
consideration for CenterPoint Energy's interest in Texas Genco. In such an
event, CenterPoint Energy may pursue other means for monetizing its remaining
interest in Texas Genco and no assurance can be given that such efforts would be
successful.

AS A HOLDING COMPANY WITH NO OPERATIONS OF OUR OWN, WE WILL DEPEND ON
DISTRIBUTIONS FROM OUR SUBSIDIARIES TO MEET OUR PAYMENT OBLIGATIONS, AND
PROVISIONS OF APPLICABLE LAW OR CONTRACTUAL RESTRICTIONS COULD LIMIT THE
AMOUNT OF THOSE DISTRIBUTIONS.

We derive all our operating income from, and hold all our assets through,
our subsidiaries. As a result, we will depend on distributions from our
subsidiaries in order to meet our payment obligations. In general, these

31

subsidiaries are separate and distinct legal entities and have no obligation to
provide us with funds for our payment obligations, whether by dividends,
distributions, loans or otherwise. In addition, provisions of applicable law,
such as those limiting the legal sources of dividends and those under the 1935
Act, limit their ability to make payments or other distributions to us, and they
could agree to contractual restrictions on their ability to make distributions.

Our right to receive any assets of any subsidiary, and therefore the right
of our creditors to participate in those assets, will be effectively
subordinated to the claims of that subsidiary's creditors, including trade
creditors. In addition, even if we were a creditor of any subsidiary, our rights
as a creditor would be subordinated to any security interest in the assets of
that subsidiary and any indebtedness of the subsidiary senior to that held by
us.

As of December 31, 2004, we had $1.5 billion of outstanding floating-rate
debt owed to third parties. The interest rate spreads on such debt are
substantially above our historical interest rate spreads. In addition, any
floating-rate debt issued by us in the future could be at interest rates
substantially above our historical borrowing rates. While we may seek to use
interest rate swaps in order to hedge portions of our floating-rate debt, we may
not be successful in obtaining hedges on acceptable terms. An increase in
short-term interest rates could result in higher interest costs and could
adversely affect our results of operations, financial condition and cash flows.

THE USE OF DERIVATIVE CONTRACTS BY US AND OUR SUBSIDIARIES IN THE NORMAL
COURSE OF BUSINESS COULD RESULT IN FINANCIAL LOSSES THAT NEGATIVELY IMPACT OUR
RESULTS OF OPERATIONS AND THOSE OF OUR SUBSIDIARIES.

We and our subsidiaries use derivative instruments, such as swaps, options,
futures and forwards, to manage our commodity and financial market risks. We and
our subsidiaries could recognize financial losses as a result of volatility in
the market values of these contracts, or if a counterparty fails to perform. In
the absence of actively quoted market prices and pricing information from
external sources, the valuation of these financial instruments can involve
management's judgment or use of estimates. As a result, changes in the
underlying assumptions or use of alternative valuation methods could affect the
reported fair value of these contracts.

OTHER RISKS

WE AND CENTERPOINT HOUSTON COULD INCUR LIABILITIES ASSOCIATED WITH BUSINESSES

AND ASSETS THAT WE HAVE TRANSFERRED TO OTHERS.

Under some circumstances, we and CenterPoint Houston could incur
liabilities associated with assets and businesses we and CenterPoint Houston no
longer own. These assets and businesses were previously owned by Reliant Energy,
Incorporated directly or through subsidiaries and include:

- those transferred to RRI or its subsidiaries in connection with the
organization and capitalization of RRI prior to its initial public
offering in 2001; and

- those transferred to Texas Genco in connection with its organization and
capitalization.

In connection with the organization and capitalization of RRI, RRI and its
subsidiaries assumed liabilities associated with various assets and businesses
transferred to them. RRI also agreed to indemnify, and cause the applicable
transferee subsidiaries to indemnify, us and our subsidiaries, including
CenterPoint Houston, with respect to liabilities associated with the transferred
assets and businesses. The indemnity provisions were intended to place sole
financial responsibility on RRI and its subsidiaries for all liabilities
associated with the current and historical businesses and operations of RRI,
regardless of the time those liabilities arose. If RRI is unable to satisfy a
liability that has been so assumed in circumstances in which Reliant Energy,
Incorporated has not been released from the liability in connection with the
transfer, we or CenterPoint Houston could be responsible for satisfying the
liability.

32

RRI reported in its Annual Report on Form 10-K for the year ended December
31, 2004 that as of December 31, 2004 it had $5.2 billion of total debt and its
unsecured debt ratings are currently below investment grade. If RRI were unable
to meet its obligations, it would need to consider, among various options,
restructuring under the bankruptcy laws, in which event RRI might not honor its
indemnification obligations and claims by RRI's creditors might be made against
us as its former owner.

Reliant Energy, Incorporated and RRI are named as defendants in a number of
lawsuits arising out of power sales in California and other West Coast markets
and financial reporting matters. Although these matters relate to the business
and operations of RRI, claims against Reliant Energy, Incorporated have been
made on grounds that include the effect of RRI's financial results on Reliant
Energy, Incorporated's historical financial statements and liability of Reliant
Energy, Incorporated as a controlling shareholder of RRI. We or CenterPoint
Houston could incur liability if claims in one or more of these lawsuits were
successfully asserted against us or CenterPoint Houston and indemnification from
RRI were determined to be unavailable or if RRI were unable to satisfy
indemnification obligations owed with respect to those claims.

In connection with the organization and capitalization of Texas Genco,
Texas Genco assumed liabilities associated with the electric generation assets
Reliant Energy, Incorporated transferred to it. Texas Genco also agreed to
indemnify, and cause the applicable transferee subsidiaries to indemnify, us and
our subsidiaries, including CenterPoint Houston, with respect to liabilities
associated with the transferred assets and businesses. In many cases the
liabilities assumed were held by CenterPoint Houston and CenterPoint Houston was
not released by third parties from these liabilities. The indemnity provisions
were intended generally to place sole financial responsibility on Texas Genco
and its subsidiaries for all liabilities associated with the current and
historical businesses and operations of Texas Genco, regardless of the time
those liabilities arose. In connection with the sale of Texas Genco's fossil
generation assets (coal, lignite and gas-fired plants) to Texas Genco LLC, the
separation agreement we entered into with Texas Genco in connection with the
organization and capitalization of Texas Genco was amended to provide that all
of Texas Genco's rights and obligations under the separation agreement relating
to its fossil generation assets, including Texas Genco's obligation to indemnify
us with respect to liabilities associated with the fossil generation assets and
related business, were assigned to and assumed by Texas Genco LLC. In addition,
under the amended separation agreement, Texas Genco is no longer liable for, and
CenterPoint Energy has assumed and agreed to indemnify Texas Genco LLC against,
liabilities that Texas Genco originally assumed in connection with its
organization to the extent, and only to the extent, that such liabilities are
covered by certain insurance policies or other similar agreements held by
CenterPoint Energy. If Texas Genco or Texas Genco LLC were unable to satisfy a
liability that had been so assumed or indemnified against, and provided Reliant
Energy, Incorporated had not been released from the liability in connection with
the transfer, CenterPoint Houston could be responsible for satisfying the
liability.

WE, TOGETHER WITH OUR SUBSIDIARIES, ARE SUBJECT TO REGULATION UNDER THE 1935
ACT. THE 1935 ACT AND RELATED RULES AND REGULATIONS IMPOSE A NUMBER OF
RESTRICTIONS ON OUR ACTIVITIES.

We and our subsidiaries are subject to regulation by the SEC under the 1935
Act. The 1935 Act, among other things, limits the ability of a holding company
and its regulated subsidiaries to issue debt and equity securities without prior
authorization, restricts the source of dividend payments to current and retained
earnings without prior authorization, regulates sales and acquisitions of
certain assets and businesses and governs affiliated service, sales and
construction contracts.

We received an order from the SEC under the 1935 Act on June 30, 2003
relating to our financing activities, which is effective until June 30, 2005.
Although authorized levels of financing, together with current levels of
liquidity, are believed to be adequate during the period the order is effective,
unforeseen events could result in capital needs in excess of authorized amounts,
necessitating further authorization from the SEC. Approval of filings under the
1935 Act can take extended periods.

We must seek a new financing order under the 1935 Act for approval of our
post-June 30, 2005 financing activities before the current financing order
expires on June 30, 2005. If we are unable to obtain a new financing order, we
would generally be unable to engage in any financing transactions, including the
refinancing of existing obligations after June 30, 2005.

33

If our earnings for subsequent quarters are insufficient to pay dividends
from current earnings, additional authority would be required from the SEC for
payment of the quarterly dividend from capital or unearned surplus, but there
can be no assurance that the SEC would authorize such payments.

The United States Congress from time to time considers legislation that
would repeal the 1935 Act. We cannot predict at this time whether this
legislation or any variation thereof will be adopted or, if adopted, the effect
of any such law on our business.

We currently have general liability and property insurance in place to
cover certain of our facilities in amounts that we consider appropriate. Such
policies are subject to certain limits and deductibles and do not include
business interruption coverage. We cannot assure you that insurance coverage
will be available in the future at current costs or on commercially reasonable
terms or that the insurance proceeds received for any loss of, or any damage to,
any of our facilities will be sufficient to restore the loss or damage without
negative impact on our results of operations, financial condition and cash
flows.

Texas Genco and the other owners of the South Texas Project maintain
nuclear property and nuclear liability insurance coverage as required by law and
periodically review available limits and coverage for additional protection. The
owners of the South Texas Project currently maintain $2.75 billion in property
damage insurance coverage, which is above the legally required minimum, but is
less than the total amount of insurance currently available for such losses.
Under the federal Price Anderson Act, the maximum liability to the public of
owners of nuclear power plants was $10.8 billion as of December 31, 2004. Owners
are required under the Price Anderson Act to insure their liability for nuclear
incidents and protective evacuations. Texas Genco and the other owners of the
South Texas Project currently maintain the required nuclear liability insurance
and participate in the industry retrospective rating plan. In addition, the
security procedures at this facility have recently been enhanced to provide
additional protection against terrorist attacks. All potential losses or
liabilities associated with the South Texas Project may not be insurable, and
the amount of insurance may not be sufficient to cover them.

In common with other companies in its line of business that serve coastal
regions, CenterPoint Houston does not have insurance covering its transmission
and distribution system because CenterPoint Houston believes it to be cost
prohibitive. If CenterPoint Houston were to sustain any loss of, or damage to,
its transmission and distribution properties, it would be entitled to seek to
recover such loss or damage through a change in its regulated rates, although
there is no assurance that CenterPoint Houston ultimately would obtain any such
rate recovery or that any such rate recovery would be timely granted. Therefore,
we cannot assure you that CenterPoint Houston will be able to restore any loss
of, or damage to, any of its transmission and distribution properties without
negative impact on its results of operations, financial condition and cash
flows.

ITEM 2. PROPERTIES

CHARACTER OF OWNERSHIP

We own or lease our principal properties in fee, including our corporate
office space and various real property and facilities relating to our generation
assets and development activities. Most of our electric lines and gas mains are
located, pursuant to easements and other rights, on public roads or on land
owned by others.

ELECTRIC TRANSMISSION & DISTRIBUTION

For information regarding the properties of our Electric Transmission &
Distribution business segment, please read "Our Business -- Electric
Transmission & Distribution" in Item 1 of this report, which information is
incorporated herein by reference.

34

NATURAL GAS DISTRIBUTION

For information regarding the properties of our Natural Gas Distribution
business segment, please read "Our Business -- Natural Gas Distribution" in Item
1 of this report, which information is incorporated herein by reference.

PIPELINES AND GATHERING

For information regarding the properties of our Pipelines and Gathering
business segment, please read "Our Business -- Pipelines and Gathering" in Item
1 of this report, which information is incorporated herein by reference.

OTHER OPERATIONS

For information regarding the properties of our Other Operations business
segment, please read "Our Business -- Other Operations" in Item 1 of this
report, which information is incorporated herein by reference.

ITEM 3. LEGAL PROCEEDINGS

For a brief description of certain legal and regulatory proceedings
affecting us, please read "Regulation" and "Environmental Matters" in Item 1 of
this report and Notes 4 and 11(c) to our consolidated financial statements,
which information is incorporated herein by reference.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to the vote of our security holders during
the fourth quarter of 2004.

As of February 28, 2005, our common stock was held of record by
approximately 58,677 shareholders. Our common stock is listed on the New York
and Chicago Stock Exchanges and is traded under the symbol "CNP."

The following table sets forth the high and low closing prices of the
common stock of CenterPoint Energy on the New York Stock Exchange composite tape
during the periods indicated, as reported by Bloomberg, and the cash dividends
declared in these periods. Cash dividends paid aggregated $0.40 per share in
both 2003 and 2004.

(1) The $0.20 per share dividend for the second quarter of 2003 included the
third quarter dividend declared on June 18, 2003 and paid on September 10,
2003.

The closing market price of our common stock on December 31, 2004 was
$11.30 per share.

The 1935 Act restricts the source of our dividend payments to current and
retained earnings, in the absence of approval from the SEC under the 1935 Act to
pay dividends out of capital or unearned surplus.

36

In addition to the limitation imposed by the 1935 Act, the amount of future
cash dividends will be subject to determination based upon our results of
operations and financial condition, our future business prospects, any
applicable contractual restrictions and other factors that our board of
directors considers relevant and will be declared at the discretion of the board
of directors.

Recent Sales of Unregistered Securities

In December 2004, we awarded Milton Carroll 20,000 shares of our common
stock pursuant to an agreement under which he serves as Chairman of our Board of
Directors. We relied on the private placement exemption from registration under
Section 4(2) of the Securities Act of 1933.

Repurchases of Equity Securities

During the quarter ended December 31, 2004, none of our equity securities
registered pursuant to Section 12 of the Securities Exchange Act of 1934 were
purchased by or on behalf of us or any of our "affiliated purchasers," as
defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934.

37

ITEM 6. SELECTED FINANCIAL DATA

The following table presents selected financial data with respect to our
consolidated financial condition and consolidated results of operations and
should be read in conjunction with our consolidated financial statements and the
related notes in Item 8 of this report.

(1) 2001 net income includes the cumulative effect of an accounting change
resulting from the adoption of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ($58 million after-tax

(2) 2003 net income includes the cumulative effect of an accounting change
resulting from the adoption of SFAS No. 143, "Accounting for Asset
Retirement Obligations" ($80 million after-tax gain, or $0.26 and $0.24
earnings per basic and diluted share, respectively), which is included in
discontinued operations related to Texas Genco.

(3) 2004 net income includes an after-tax extraordinary loss of $977 million
($3.18 and $2.72 loss per basic and diluted share, respectively) based on
our analysis of the Texas Utility Commission's deliberations in the 2004
True-Up Proceeding. Additionally, we recorded a net after-tax loss of
approximately $133 million ($0.43 and $0.37 loss per basic and diluted
share, respectively) in 2004 related to our interest in Texas Genco. For
more information on these and other matters currently affecting us, please
see "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Executive Summary -- Significant Events in 2005."

(4) The subsidiary trusts that issued trust preferred securities have been
deconsolidated as a result of the adoption of FIN 46 "Consolidation of
Variable Interest Entities, an Interpretation of Accounting Research
Bulletin No. 51" (FIN 46) and the subordinated debentures issued to those
trusts are now reported as long-term debt effective December 31, 2003. For
additional information related to the adoption of FIN 46, please read Note
2(n) to our consolidated financial statements.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion and analysis should be read in combination with
our consolidated financial statements included in Item 8 herein.

OVERVIEW

BACKGROUND

We are a public utility holding company, created on August 31, 2002 as part
of a corporate restructuring of Reliant Energy, Incorporated (Reliant Energy) in
compliance with requirements of the Texas Electric Choice Plan (Texas electric
restructuring law). We are the successor to Reliant Energy for financial
reporting purposes under the Securities Exchange Act of 1934. Our operating
subsidiaries own and operate electric transmission and distribution facilities,
natural gas distribution facilities, interstate pipelines and natural gas
gathering, processing and treating facilities. We are a registered holding
company under the Public Utility Holding Company Act of 1935, as amended (1935
Act). For information about the 1935 Act, please read " -- Liquidity and Capital
Resources -- Future Sources and Uses of Cash -- Certain Contractual and
Regulatory Limits on Ability to Issue Securities and Pay Dividends on Our Common
Stock." Our indirect wholly owned subsidiaries include:

In July 2004, we announced our agreement to sell our majority owned
subsidiary, Texas Genco Holdings, Inc. (Texas Genco), to Texas Genco LLC
(formerly known as GC Power Acquisition LLC), an entity owned in equal parts by
affiliates of The Blackstone Group, Hellman & Friedman LLC, Kohlberg Kravis
Roberts & Co. L.P. and Texas Pacific Group. On December 15, 2004, Texas Genco
completed the sale of its fossil generation assets (coal, lignite and gas-fired
plants) to Texas Genco LLC for $2.813 billion in cash. Following the sale, Texas
Genco distributed $2.231 billion in cash to us. Texas Genco's principal
remaining asset is its ownership interest in a nuclear generating facility. The
final step of the transaction, the merger of Texas Genco

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with a subsidiary of Texas Genco LLC in exchange for an additional cash payment
of $700 million to us, is expected to close during the first half of 2005,
following receipt of approval from the Nuclear Regulatory Commission (NRC).

At the time of Reliant Energy's corporate restructuring, it owned an 83%
interest in Reliant Resources, Inc., now known as Reliant Energy, Inc. (RRI). On
September 30, 2002, we distributed that interest to our shareholders (the RRI
Distribution).

BUSINESS SEGMENTS

In this section, we discuss our results from continuing operations on a
consolidated basis and individually for each of our business segments. We also
discuss our liquidity, capital resources and critical accounting policies.
CenterPoint Energy is first and foremost an energy delivery company and it is
our intention to remain focused on this segment of the energy business. The
results of our business operations are significantly impacted by weather,
customer growth, cost management, rate proceedings before regulatory agencies
and other actions of the various regulatory agencies to which we are subject.
Our transmission and distribution services remain subject to rate regulation and
are reported in the Electric Transmission & Distribution business segment as are
impacts of generation-related stranded costs and other true-up balances
recoverable by the regulated utility. Although our former retail sales business
is no longer conducted by us, retail customers remained regulated customers of
our former integrated electric utility, Reliant Energy HL&P, through the date of
their first meter reading in 2002. Sales of electricity to retail customers in
2002 prior to this meter reading are reflected in the Electric Transmission &
Distribution business segment. Our reportable business segments include:

Electric Transmission & Distribution

Our electric transmission and distribution operations provide electric
transmission and distribution services to retail electric providers serving
approximately 1.9 million metered customers in a 5,000-square-mile area of the
Texas Gulf coast that has a population of approximately 4.8 million people and
includes Houston.

On behalf of retail electric providers, CenterPoint Houston delivers
electricity from power plants to substations and from one substation to another
and to retail electric customers in locations throughout the control area
managed by the Electric Reliability Council of Texas, Inc. (ERCOT). ERCOT serves
as the regional reliability coordinating council for member electric power
systems in Texas. ERCOT membership is open to consumer groups, investor and
municipally owned electric utilities, rural electric cooperatives, independent
generators, power marketers and retail electric providers. The ERCOT market
represents approximately 85% of the demand for power in Texas and is one of the
nation's largest power markets. Transmission services are provided under tariffs
approved by the Public Utility Commission of Texas (the Texas Utility
Commission).

Operations include construction and maintenance of electric transmission
and distribution facilities, metering services, outage response services and
other call center operations. Distribution services are provided under tariffs
approved by the Texas Utility Commission.

Natural Gas Distribution

CERC owns and operates our natural gas distribution business, which engages
in intrastate natural gas sales to, and natural gas transportation for,
approximately 3 million residential, commercial and industrial customers in
Arkansas, Louisiana, Minnesota, Mississippi, Oklahoma and Texas. These
operations are regulated as natural gas utility operations. Its operations also
include non-rate regulated retail and wholesale gas sales to, and transportation
services for, commercial and industrial customers in the six states listed above
as well as several other Midwestern states.

40

Pipelines and Gathering

CERC's pipelines and gathering business operates two interstate natural gas
pipelines as well as gas gathering facilities and also provides pipeline
services. CERC's gathering operations are conducted by a wholly owned gas
gathering subsidiary, CenterPoint Energy Field Services, Inc. (CEFS). CEFS is a
natural gas gathering and processing business serving natural gas fields in the
Midcontinent basin of the United States that interconnect with CERC's pipelines,
as well as other interstate and intrastate pipelines. CEFS operates gathering
pipelines, which collect natural gas from approximately 200 separate systems
located in major producing fields in Arkansas, Louisiana, Oklahoma and Texas.
CEFS, through its Service Star operating division, provides remote data
monitoring and communications services to affiliates and third parties. The
Service Star operating division currently provides monitoring activities at over
6,000 locations across Alabama, Arkansas, Kansas, Oklahoma, Louisiana,
Mississippi, Missouri, New Mexico, Texas and Wyoming.

Other Operations

Our Other Operations business segment includes office buildings and other
real estate used in our business operations and other corporate operations which
support all of our business operations.

EXECUTIVE SUMMARY

RECENT EVENTS

2004 TRUE-UP PROCEEDING

Pursuant to the Texas Electric Choice Plan (the Texas electric
restructuring law), CenterPoint Houston is permitted to recover certain costs
associated with the transition to a competitive retail electric market in Texas.
The amount of costs recoverable was determined in a true-up proceeding before
the Texas Utility Commission. In March 2004, CenterPoint Houston filed the final
true-up application required by the Texas electric restructuring law with the
Texas Utility Commission. CenterPoint Houston's requested true-up balance was
$3.7 billion, excluding interest and net of the retail clawback from RRI. In
June, July and September 2004, the Texas Utility Commission conducted hearings
on and held public meetings addressing CenterPoint Houston's true-up
application. In December 2004, the Texas Utility Commission approved a final
order in CenterPoint Houston's true-up proceeding authorizing CenterPoint
Houston to recover $2.3 billion including interest through August 31, 2004,
subject to adjustments to reflect the benefit of certain deferred taxes and the
accrual of interest and payment of excess mitigation credits after August 31,
2004. Based on our analysis of the Texas Utility Commission's final order, we
recorded an after-tax charge to earnings in 2004 of $977 million to write-down
our electric generation-related regulatory assets to their realizable value,
which is reflected as an extraordinary loss in the Statements of Consolidated
Operations. Additionally, we have recorded other income of $226 million in the
fourth quarter of 2004 representing the return on our true-up balance for the
years 2002, 2003 and 2004 based on the Texas Utility Commission's final decision
on this matter. In January 2005, we appealed certain aspects of the final order
seeking to increase the true-up balance ultimately recovered by CenterPoint
Houston. Other parties have also appealed the order, seeking to reduce the
amount authorized for CenterPoint Houston's recovery. Although we believe we
have meritorious arguments and that the other parties' appeals are without
merit, no prediction can be made as to the ultimate outcome or timing of such
appeals.

In December 2004, CenterPoint Houston filed for approval of a financing
order to issue transition bonds to securitize its true-up balance, which will be
adjusted downward to reflect the benefit of certain deferred taxes previously
recovered through rates, and upward to reflect the accrual of interest and
payment of excess mitigation credits occurring after August 31, 2004. On March
9, 2005, the Texas Utility Commission issued its order allowing CenterPoint
Houston to securitize approximately $1.8 billion and requiring that the benefit
of certain deferred taxes be reflected as a reduction in the competition
transition charge. CenterPoint Houston also has filed an application for a
competition transition charge to recover any portion of its adjusted true-up
balance that it is not able to recover through the issuance of transition bonds.
Hearings in this proceeding are scheduled for April 2005.

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The balance approved by the Texas Utility Commission in the 2004 True-Up
Proceeding includes $699 million in environmental expenditures incurred by Texas
Genco, of which approximately $50 million was not projected to be spent until
2005 and 2006. CenterPoint Houston has agreed to return to its customers any
funds not expended on environmental projects by December 31, 2006. The December
2004 final order in the 2004 True-Up Proceeding requires CenterPoint Houston to
demonstrate by January 31, 2007, that the $699 million was spent on
environmental projects or to refund its customers the unspent funds, along with
interest.

SALE OF TEXAS GENCO

Disposition. On December 14, 2004, Texas Genco merged with an indirect
wholly owned subsidiary of CenterPoint Energy. As a result of the merger, Texas
Genco became our indirect wholly owned subsidiary, and all of Texas Genco's
publicly held shares (other than 227 shares held by shareholders who validly
perfected their dissenter's rights under Texas law) were converted into the
right to receive $47 per share in cash without interest (the Merger
Consideration) less any applicable withholding taxes. In connection with the
merger, Texas Genco entered into a credit agreement (the Overnight Bridge Loan)
under which it borrowed approximately $716 million on December 14, 2004 to
finance the payment of the aggregate Merger Consideration payable as a result of
the merger. Texas Genco's shares ceased to be publicly traded as of the close of
trading on December 14, 2004. The merger was part of the first step of the sale
transaction announced in July 2004 in which Texas Genco LLC agreed to acquire
Texas Genco for approximately $3.65 billion in cash.

On December 15, 2004, Texas Genco completed the sale of its fossil
generation assets (coal, lignite and gas-fired plants) to Texas Genco LLC for
$2.813 billion in cash. Texas Genco used approximately $716 million of the cash
proceeds from the sale to repay the Overnight Bridge Loan and distributed $2.231
billion, consisting of the balance of the cash proceeds from the sale and cash
on hand, to us. We used the proceeds primarily to repay outstanding
indebtedness.

In connection with the sale of Texas Genco's fossil generation assets to
Texas Genco LLC, Texas Genco, LP, a subsidiary of Texas Genco (Genco LP), also
entered into a services agreement with Texas Genco LLC, under which Texas Genco
LLC has agreed to provide at cost energy dispatch and coordination services to
Genco LP, administer Genco LP's PUC-mandated capacity auctions and market Genco
LP's excess capacity and energy to third parties. For those services, Genco LP
will pay a monthly fee.

Following the sale of its fossil generation assets, Texas Genco's principal
remaining asset is its interest in the South Texas Project Electric Generating
Station, a nuclear generating facility (South Texas Project). Texas Genco
currently owns a 30.8% interest in the South Texas Project, that is subject to
increase pursuant to the right of first refusal described below, and currently
bears a corresponding 30.8% share of the capital and operating costs associated
with the project.

In connection with the sale of Texas Genco's fossil generation assets to
Texas Genco LLC, Genco LP entered into a power purchase and sale agreement with
a subsidiary of Texas Genco LLC, which we refer to as the back-to-back power
purchase agreement. Under this agreement, Genco LP has agreed to sell forward a
substantial portion of Genco LP's total share of the energy from the South Texas
Project through December 31, 2008. Genco LP has agreed to sell this energy on a
unit-contingent basis, meaning that Genco LP will be excused (subject to the
contingent payment for economic costs described below) from its obligations to
deliver this energy to the extent the energy is unavailable as a result of a
derating or forced outage at the South Texas Project or other specified causes.

During the period from the closing of the first step of the sale
transaction until the closing of the second step, the pricing for the energy
sold under the back-to-back power purchase agreement will be at the
weighted-average price achieved by Texas Genco LLC on its firm forward sales in
the South ERCOT zone, subject to payment by Genco LP to Texas Genco LLC, in the
event the second step does not close, of 50% of the economic cost (i.e.,
liquidated damages payable to third parties or cost of cover) incurred by Texas
Genco LLC during that period as a result of energy from the South Texas Project
being unavailable to meet the contract quantity. After any termination of the
transaction agreement, the pricing for this energy will be at

42

90% of such weighted-average price, with no contingent payment for economic
costs. The transaction agreement may be terminated under various circumstances,
including a failure to close the second step of the sale transaction by April
30, 2005 (which date may be extended by either party for up to two consecutive
90-day periods if NRC approval has not yet been obtained or is being contested
and all other closing conditions are capable of being satisfied).

The second step of the transaction, the merger of Texas Genco with a
subsidiary of Texas Genco LLC in exchange for an additional cash payment to us
of $700 million, is expected to close during the first half of 2005 following
receipt of approval from the NRC. Total cash proceeds to CenterPoint Energy from
both steps of the transaction are expected to be $2.931 billion.

We recorded an after-tax loss of approximately $214 million in 2004 related
to the sale of Texas Genco and an additional after-tax loss of $152 million
offsetting our interest in Texas Genco's 2004 earnings from July 1, 2004. Until
the sale of Texas Genco is complete, our interest in any future Texas Genco
earnings will be offset by an increase in the loss on the pending sale. The
consolidated financial statements included in this annual report on Form 10-K
present Texas Genco's operations as discontinued operations in accordance with
Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," (SFAS No. 144).

Right of First Refusal. In September 2004, Genco LP signed an agreement to
purchase a portion of AEP Texas Central Company's (AEP) 25.2% interest in the
South Texas Project for approximately $174 million. Once the purchase is
complete, Genco LP will own an additional 13.2% interest in the South Texas
Project for a total of 44%, or approximately 1,100 MW. This purchase agreement
was entered into pursuant to Genco LP's right of first refusal to purchase this
interest when AEP announced its agreement to sell this interest to a
third-party. In addition to AEP's ownership interest and Genco LP's current
30.8% ownership, the 2,500 MW nuclear plant is currently 28%-owned by City
Public Service of San Antonio (CPS) and 16%-owned by Austin Energy. CPS is
expected to purchase AEP's remaining 12% ownership interest under its right of
first refusal. The sale is subject to approval by the NRC. Texas Genco expects
to fund the purchase of its share of AEP's interest, including reimbursements of
draws under letters of credit, with existing cash balances that have been
provided to cash collateralize the letters of credit as described below and, if
necessary, cash expected to be generated through operations. If CPS were to
default and fail to purchase the 12% interest it has agreed to acquire, Texas
Genco would purchase AEP's entire 25.2% interest in the South Texas Project, in
which case Texas Genco would need approximately $158 million of additional cash.
We expect this transaction will be completed by the end of the second quarter of
2005.

In December 2004, prior to the consummation of the sale of Texas Genco's
coal, lignite and gas-fired generation assets to Texas Genco LLC, the $250
million revolving credit facility of Genco LP was terminated and the then
outstanding letters of credit aggregating $182 million issued under the facility
in favor of AEP relating to the right of first refusal were cash collateralized
at 105% of their face amount. In February 2005, Genco LP also established a $75
million term loan facility under which borrowings may be made for working
capital purposes at LIBOR plus 50 basis points. Two drawings aggregating $75
million may be made under the facility which matures on the earlier of August
2005 or the closing of the final step of the Texas Genco sale. An initial draw
of $59 million was made in February 2005. This facility is secured by a lien on
Texas Genco's equity and partnership interests in its subsidiaries and cash
collateral accounts described above.

SIGNIFICANT EVENTS IN 2005

Resolution of legal proceedings relating to the 2004 True-Up Proceeding,
recovery of amounts approved in the 2004 True-Up Proceeding and the sale of our
remaining interest in Texas Genco are the most significant events facing us in
2005. We expect to use the proceeds received from these events to further repay
a portion of our indebtedness and for other general corporate purposes. In
January 2005, we appealed certain aspects of the final order seeking to increase
the true-up balance ultimately recovered by CenterPoint Houston. Other parties
have also appealed the order, seeking to reduce the amount authorized for
CenterPoint Houston's recovery. Although we believe we have meritorious
arguments and that the other parties' appeals are without merit, no prediction
can be made as to the ultimate outcome or timing of such appeals.

43

We recorded an after-tax loss of approximately $214 million in 2004 related
to the sale of our interest in Texas Genco. See "Recent Events" above. We also
recorded an after-tax extraordinary loss of $977 million in 2004 related to the
2004 True-Up Proceeding as discussed above. Portions of these losses recorded in
periods prior to the fourth quarter of 2004 reduced our earnings below the level
required for us to continue paying our current quarterly dividends out of
current earnings as required under our Securities and Exchange Commission (SEC)
financing order. However, in May 2004, we received an order from the SEC under
the 1935 Act authorizing us to continue to pay our current quarterly dividend in
the second and third quarters of 2004 out of capital or unearned surplus in the
event we had such losses. We declared a dividend in the fourth quarter of 2004
out of current earnings. If our earnings for subsequent quarters are
insufficient to pay dividends from current earnings, additional authority would
be required from the SEC for payment of the quarterly dividend from capital or
unearned surplus, but there can be no assurance that the SEC would authorize
such payments. These losses would delay the timing of our achievement of a ratio
of common equity to total capitalization of 30% as generally required by the SEC
under the 1935 Act. Accordingly, we may issue equity and take other actions to
achieve a future equity capitalization of 30%.

In March 2005, we replaced our $750 million revolving credit facility with
a $1 billion five-year revolving credit facility. Borrowings may be made under
the facility at LIBOR plus 100 basis points based on current credit ratings. An
additional utilization fee of 12.5 basis points applies to borrowings any time
more than 50% of the facility is utilized. Changes in credit ratings would lower
or raise the increment to LIBOR depending on whether ratings improved or were
lowered.

In March 2005, CenterPoint Houston established a $200 million five-year
revolving credit facility. Borrowings may be made under the facility at LIBOR
plus 75 basis points based on CenterPoint Houston's current credit rating. An
additional utilization fee of 12.5 basis points applies to borrowings any time
more than 50% of the facility is utilized. Changes in credit ratings would lower
or raise the increment to LIBOR depending on whether ratings improved or were
lowered.

CenterPoint Houston also established a $1.31 billion credit facility in
March 2005. This facility is available to be utilized only to refinance
CenterPoint Houston's $1.31 billion term loan maturing in November 2005 in the
event that proceeds from the issuance of transition bonds are not sufficient to
repay such term loan. Drawings may be made under this credit facility until
November 2005, at which time any outstanding borrowings are converted to term
loans maturing in November 2007. Net proceeds from the issuance of transition
bonds and certain new net indebtedness for borrowed money issued by CenterPoint
Houston in excess of $200 million must be used to repay borrowings under the new
facility. Based on CenterPoint Houston's current credit ratings, borrowings
under the facility can be made at LIBOR plus 75 basis points. Changes in credit
ratings would lower or raise the increment to LIBOR depending on whether ratings
improved or were lowered. Any drawings under this facility must be secured by
CenterPoint Houston's general mortgage bonds in the same principal amount and
bearing the same interest rate as such drawings.

In March 2005, we filed a registration statement relating to an offer to
exchange our 3.75% convertible senior notes due 2023 for a new series of 3.75%
convertible senior notes due 2023. This registration statement has not yet been
declared effective by the SEC. We expect to conduct the exchange offer in
response to the guidance set forth in Emerging Issues Task Force Issue No. 04-8,
"The Effect of Contingently Convertible Instruments on Diluted Earnings Per
Share." Under that guidance, because the terms of the new notes provide for
settlement of the principal amount on conversion in cash rather than our common
stock, exchanging new notes for old notes will allow us to exclude the portion
of the conversion value of the new notes attributable to their principal amount
from our computation of diluted earnings per share from continuing operations.

44

2004 HIGHLIGHTS

In addition to the extraordinary loss related to the 2004 True-Up
Proceeding and the loss related to the sale of Texas Genco as discussed above,
our operating performance for 2004 compared to 2003 were affected by:

- the termination of revenues related to Excess Cost Over Market (ECOM) as
of January 1, 2004 compared to ECOM revenues of $661 million recorded in
2003;

- an increase in operating income of $135 million in our Electric
Transmission & Distribution business segment, excluding ECOM, primarily
due to the absence of an $87 million reserve recorded in 2003 related to
the final fuel reconciliation, excluding interest, and a $15 million
reversal of this reserve in 2004;

- an increase in other income of $226 million related to the return on our
true-up balance as discussed above;

- rate increases of $15 million in 2004 in our Natural Gas Distribution
business segment;

- increased operating income of $22 million in our Pipelines and Gathering
business segment primarily from increased throughput, favorable commodity
prices and increased ancillary services; and

- continued customer growth, with the addition of over 92,000 metered
electric and gas customers.

CERTAIN FACTORS AFFECTING FUTURE EARNINGS

Our past earnings and results of operations are not necessarily indicative
of our future earnings and results of operations. The magnitude of our future
earnings and results of our operations will depend on or be affected by numerous
factors including:

- the timing and amount of our recovery of the true-up components;

- the timing and results of the monetization of our remaining interest in
Texas Genco;

- state and federal legislative and regulatory actions or developments,
including deregulation, re-regulation, constraints placed on our
activities or business by the 1935 Act, changes in or application of laws
or regulations applicable to other aspects of our business and actions
with respect to:

- allowed rates of return;

- rate structures;

- recovery of investments; and

- operation and construction of facilities;

- industrial, commercial and residential growth in our service territory
and changes in market demand and demographic patterns;

- the timing and extent of changes in commodity prices, particularly
natural gas;

- changes in interest rates or rates of inflation;

- weather variations and other natural phenomena;

- the timing and extent of changes in the supply of natural gas;

- commercial bank and financial market conditions, our access to capital,
the cost of such capital, receipt of certain financing approvals under
the 1935 Act, and the results of our financing and refinancing efforts,
including availability of funds in the debt capital markets;

- actions by rating agencies;

- inability of various counterparties to meet their obligations to us;

45

- non-payment for our services due to financial distress of our customers,
including RRI;

- the outcome of the pending securities lawsuits against us, Reliant Energy
and RRI;

- the ability of RRI to satisfy its obligations to us, including indemnity
obligations;

- our ability to control costs;

- the investment performance of our employee benefit plans;

- our internal restructuring or other restructuring options that may be
pursued;

- our potential business strategies, including acquisitions or dispositions
of assets or businesses, which cannot be assured to be completed or
beneficial to us; and

- other factors discussed in Item 1 of this report under "Risk Factors."

CONSOLIDATED RESULTS OF OPERATIONS

All dollar amounts in the tables that follow are in millions, except for
per share amounts.

Income from Continuing Operations. We reported income from continuing
operations before extraordinary loss of $205 million ($0.61 per diluted share)
for 2004 as compared to $409 million ($1.24 per diluted share) for 2003. The
decrease in income from continuing operations of $204 million was primarily due
to the termination of revenues in our Electric Transmission & Distribution
business segment related to ECOM as of January 1, 2004, which had contributed
$430 million of income in 2003, higher net transmission costs of $6 million
related to our Electric Transmission & Distribution business segment and
increased interest expense of $36 million related to continuing operations as
discussed below. These items were partially offset by the absence of an $87
million reserve recorded in 2003 by our Electric Transmission & Distribution
business segment related to the final fuel reconciliation, a $15 million
reversal of this reserve in 2004 and $226 million of other income related to a
return on the true-up balance of our Electric Transmission & Distribution
business segment. These items were a result of the Texas Utility Commission's
final orders in the fuel reconciliation and the 2004 True-Up Proceeding.
Additionally, income from continuing operations was favorably impacted by
increased operating income of $31 million related to customer growth in our
Electric Transmission & Distribution business segment, increased operating
income of $20 million in our Natural Gas Distribution business segment primarily
due to rate increases, increased operating income of $22 million in our
Pipelines and Gathering business segment primarily from increased throughput,
favorable commodity prices and increased ancillary services, and a gain of $10
million on the sale of land by our Electric Transmission & Distribution business
segment.

Net loss for 2004 included an after-tax extraordinary loss of $977 million
($2.72 per diluted share) from a write-down of regulatory assets based on our
analysis of the Texas Utility Commission's final order in the 2004 True-Up
Proceeding. Additionally, net loss for 2004 included a net after-tax loss from
discontinued operations of Texas Genco of $133 million ($0.37 per diluted
share).

Net income for 2003 includes the cumulative effect of an accounting change
resulting from the adoption of SFAS No. 143, "Accounting for Asset Retirement
Obligations" ($80 million after-tax gain, or $0.24 earnings per diluted share),
which is included in discontinued operations related to Texas Genco.

2003 COMPARED TO 2002

Income from Continuing Operations. We reported income from continuing
operations of $409 million ($1.24 per diluted share) for 2003 compared to $482
million ($1.61 per diluted share) for 2002. The decrease in income from
continuing operations for 2003 compared to 2002 of $73 million was primarily due
to a $69 million increase in expenses related to CenterPoint Houston's final
fuel reconciliation, a $36 million reduction in non-cash ECOM revenue and an
increase in interest expense of $29 million related to continuing operations due
to higher borrowing costs and increased debt levels as discussed below.

INTEREST EXPENSE AND OTHER FINANCE CHARGES

In 2002 and 2003, our $3.85 billion credit facility consisted of a revolver
and a term loan. This facility was amended in October 2003 to a $2.35 billion
credit facility, consisting of a revolver and a term loan. According to the
terms of the $3.85 billion credit facility, any net cash proceeds received from
the sale of Texas Genco were required to be applied to repay borrowings under
the credit facility. According to the terms of the $2.35 billion credit
facility, until such time as the facility had been reduced to $750 million, 100%
of any net cash proceeds received from the sale of Texas Genco were required to
be applied to repay borrowings under the credit facility and reduce the amount
available under the credit facility. In the fourth quarter of 2004, we reduced
borrowings under our credit facility by $1.574 billion and retired $375 million
of trust preferred securities. We expensed $15 million of unamortized loan costs
in the fourth quarter of 2004 that were associated with the credit facility. In
accordance with Emerging Issues Task Force Issue No. 87-24 "Allocation of
Interest to Discontinued Operations", we have reclassified interest to
discontinued operations of Texas Genco based on net proceeds to be received from
the sale of Texas Genco of $2.5 billion, and have applied the proceeds to the
amount of debt assumed to be paid down in each respective period according to
the terms of the respective credit facilities in effect for those periods. In
periods where only the term loan was

47

assumed to be repaid, the actual interest paid on the term loan was
reclassified. In periods where a portion of the revolver was assumed to be
repaid, the percentage of that portion of the revolver to the total outstanding
balance was calculated, and that percentage was applied to the actual interest
paid in those periods to compute the amount of interest reclassified.

Total interest expense incurred was $764 million, $942 million and $849
million in 2002, 2003 and 2004, respectively. We have reclassified $52 million,
$201 million and $72 million of interest expense in 2002, 2003 and 2004,
respectively, based upon actual interest expense incurred within our
discontinued operations and interest expense associated with debt that would
have been required to be repaid as a result of our disposition of Texas Genco.

RESULTS OF OPERATIONS BY BUSINESS SEGMENT

The following table presents operating income (in millions) for each of our
business segments for 2002, 2003 and 2004. Some amounts from the previous years
have been reclassified to conform to the 2004 presentation of the financial
statements. These reclassifications do not affect consolidated net income.

(1) In 2004, there were no non-cash ECOM revenues under the Texas electric
restructuring law.

(2) Usage volumes for commercial and industrial customers are included in total
GWh delivered; however, the majority of these customers are billed on a peak
demand (KW) basis and, as a result, revenues do not vary based on
consumption.

2004 Compared to 2003. Our Electric Transmission & Distribution business
segment reported operating income of $494 million for 2004, consisting of $456
million for the regulated electric transmission and distribution utility and $38
million for the transition bond company subsidiary of CenterPoint Houston that
issued $749 million principal amount of transition bonds in 2001. For 2003,
operating income totaled $1.0 billion, consisting of $321 million for the
regulated electric transmission and distribution utility, $38 million for the
transition bond company and $661 million of non-cash income associated with
ECOM. Operating income increased $31 million from continued customer growth and
a $10 million gain on a land sale, partially offset by milder weather and
decreased usage of $18 million and higher net transmission costs of $6 million.
Additionally, operating income in 2004 was favorably impacted by the absence of
$87 million reserve recorded in 2003 related to the final fuel reconciliation
and a $15 million reversal of this fuel reserve in 2004 as a result of the Texas
Utility Commission's final orders in the fuel reconciliation and the 2004
True-Up Proceeding.

2003 Compared to 2002. Our Electric Transmission & Distribution business
segment reported operating income of $1.0 billion for 2003 consisting of $321
million for the regulated electric transmission and distribution utility, $38
million for the transition bond company and $661 million of non-cash income
associated with ECOM. For 2002, operating income totaled $1.1 billion,
consisting of $359 million for the regulated electric transmission and
distribution utility, $40 million for the transition bond company and $697
million of non-cash income associated with ECOM. Increased revenues from
customer growth ($40 million) were more than offset by transition period
revenues that only occurred in 2002 ($90 million) and decreased industrial
demand, resulting in an overall decrease in electric revenues from the regulated
electric transmission and distribution business of $62 million. Additionally,
non-cash ECOM revenue decreased $36 million as a result of higher operating
margins from sales of generation based on the state-mandated capacity auctions.
Operation and maintenance expenses decreased in 2003 compared to 2002 primarily
due to the absence of purchased power costs that occurred in 2002 during the
transition period to deregulation ($48 million), a decrease in labor costs as a
result of work force reductions in 2002 ($13 million), non-recurring contract
services expense primarily related to transition to deregulation in 2002 ($10
million) and lower bad debt expense related to transition revenues in 2002 ($10
million). These decreases were offset by an increase in expenses related to
CenterPoint Houston's final fuel reconciliation ($69 million) and an increase in
benefits expense primarily due to increased pension costs ($18 million). Taxes
other than income taxes decreased $15 million primarily due to the absence of
gross receipts tax associated with transition period revenue in the first
quarter of 2002 ($9 million).

2004 Compared to 2003. Our Natural Gas Distribution business segment
reported operating income of $222 million for 2004 as compared to $202 million
for 2003. Increases in operating income of $4 million from continued customer
growth with the addition of 45,000 customers since December 31, 2003, $15
million from rate increases, $11 million from the impact of the 2003 change in
estimate of margins earned on unbilled revenues implemented in 2003 and $9
million related to certain regulatory adjustments made to the amount of
recoverable gas costs in 2003 were partially offset by the $8 million impact of
milder weather. Operations and maintenance expense increased $6 million for 2004
as compared to 2003. Excluding an $8 million charge recorded in the first
quarter of 2004 for severance costs associated with staff reductions, which has
reduced costs in later periods, operation and maintenance expenses decreased by
$2 million.

2003 Compared to 2002. Our Natural Gas Distribution business segment's
operating income increased $4 million in 2003 compared to 2002 primarily due to
higher revenues from rate increases implemented late in 2002 ($33 million),
improved margins from our unregulated commercial and industrial sales ($6
million) and continued customer growth with the addition of over 38,000
customers since December 2002 ($6 million). These increases were partially
offset by decreased revenues as a result of a decrease in the estimate of
margins earned on unbilled revenues ($11 million). Additionally, operating
income was negatively impacted by higher employee benefit expenses primarily due
to increased pension costs ($13 million), certain costs being included in
operating expense subsequent to the amendment of a receivables facility in
November 2002 as compared to being included in interest expense in the prior
year ($7 million) and increased bad debt expense primarily due to higher gas
prices ($9 million).

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PIPELINES AND GATHERING

The following table provides summary data of our Pipelines and Gathering
business segment for 2002, 2003 and 2004 (in millions, except throughput data):

2004 Compared to 2003. Our Pipelines and Gathering business segment's
operating income increased by $22 million in 2004 compared to 2003. Operating
margins (revenues less fuel costs) increased by $59 million primarily due to
favorable commodity pricing ($3 million), increased demand for certain
transportation services driven by commodity price volatility ($36 million) and
increased throughput and enhanced services related to our core gas gathering
operations ($11 million). The increase in operating margin was partially offset
by higher operation and maintenance expenses of $35 million primarily due to
compliance with pipeline integrity regulations ($4 million) and costs relating
to environmental matters ($9 million). Project work expenses included in
operation and maintenance expense increased ($11 million) resulting in a
corresponding increase in revenues billed for these services ($15 million).

2003 Compared to 2002. Our Pipelines and Gathering business segment's
operating income increased $5 million in 2003 compared to 2002. The increase was
primarily a result of increased margins (revenues less fuel costs) due to higher
commodity prices ($8 million), improved margins from new transportation
contracts to power plants ($7 million) and improved margins from enhanced
services in our gas gathering operations ($4 million), partially offset by
higher pension, employee benefit and other miscellaneous expenses ($14 million).
Project work expenses included in operation and maintenance expense decreased
($15 million) resulting in a corresponding decrease in revenues billed for these
services ($14 million).

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OTHER OPERATIONS

The following table provides summary data for our Other Operations business
segment for 2002, 2003 and 2004 (in millions):

2004 Compared to 2003. Our Other Operations business segment's operating
loss in 2004 compared to 2003 increased $7 million primarily due to a reduction
in rental income from RRI in 2004 as compared to 2003, partially offset by
changes in unallocated corporate costs in 2004 as compared to 2003.

2003 Compared to 2002. Our Other Operations business segment's operating
loss in 2003 compared to 2002 increased $18 million primarily due to changes in
unallocated corporate costs in 2002 as compared to 2003.

DISCONTINUED OPERATIONS

On September 30, 2002, we distributed all of the shares of RRI common stock
owned by us on a pro-rata basis to our shareholders. The consolidated financial
statements have been prepared to reflect the effect of the RRI Distribution as
described above on the CenterPoint Energy consolidated financial statements. The
consolidated financial statements present the RRI businesses (Wholesale Energy,
European Energy, Retail Energy and related corporate costs) as discontinued
operations in accordance with SFAS No. 144. We also recorded a $4.4 billion
non-cash loss on disposal of these discontinued operations in 2002. This loss
represents the excess of the carrying value of our net investment in RRI over
the market value of RRI common stock at the time of the RRI Distribution.

In February 2003, we sold our interest in Argener, a cogeneration facility
in Argentina, for $23 million. The carrying value of this investment was
approximately $11 million as of December 31, 2002. We recorded an after-tax gain
of $7 million from the sale of Argener in the first quarter of 2003. In April
2003, we sold our final remaining investment in Argentina, a 90 percent interest
in Empresa Distribuidora de Electricidad de Santiago del Estero S.A. We recorded
an after-tax loss of $3 million in the second quarter of 2003 related to our
Latin America operations. We have completed our strategy of exiting all of our
international investments. The consolidated financial statements present these
operations as discontinued operations in accordance with SFAS No. 144.

In November 2003, we sold CenterPoint Energy Management Services, Inc.
(CEMS), a business that provides district cooling services in the Houston
central business district and related complementary energy services to district
cooling customers and others. We recorded an after-tax loss of $1 million from
the sale of CEMS in the fourth quarter of 2003. We recorded an after-tax loss in
discontinued operations of $16 million ($25 million pre-tax) during the second
quarter of 2003 to record the impairment of the CEMS long-lived assets based on
the impending sale and to record one-time termination benefits. The consolidated
financial statements present these operations as discontinued operations in
accordance with SFAS No. 144.

In July 2004, we announced our agreement to sell our majority owned
subsidiary, Texas Genco, to Texas Genco LLC. On December 15, 2004, Texas Genco
completed the sale of its fossil generation assets (coal, lignite and gas-fired
plants) to Texas Genco LLC for $2.813 billion in cash. Following the sale, Texas
Genco distributed $2.231 billion in cash to us. Texas Genco's principal
remaining asset is its ownership interest in a nuclear generating facility. The
final step of the transaction, the merger of Texas Genco with a subsidiary of
Texas Genco LLC in exchange for an additional cash payment to us of $700
million, is expected to close during the first half of 2005, following receipt
of approval from the NRC. The Company recorded an after-tax loss of $214 million
in 2004 related to the sale of Texas Genco. In addition, as a result of this
transaction, any

52

future earnings of Texas Genco will be offset by an increase in the loss. The
consolidated financial statements present these operations as discontinued
operations in accordance with SFAS No. 144.

LIQUIDITY AND CAPITAL RESOURCES

HISTORICAL CASH FLOWS

The net cash provided by/used in operating, investing and financing
activities for 2002, 2003 and 2004 is as follows (in millions):

Net cash provided by operating activities in 2004 decreased $269 million
compared to 2003 primarily due to increased pension contributions of $453
million and decreased income tax refunds of $74 million, partially offset by the
receipt of a $177 million retail clawback payment from RRI in the fourth quarter
of 2004 and decreased accounts receivable attributable to a higher level of
accounts receivable being sold under CERC Corp.'s receivables facility ($81
million). Additionally, other changes in working capital items, primarily
increased net accounts receivable and accounts payable due to higher natural gas
prices in December 2004 as compared to December 2003 ($99 million), contributed
to the overall decrease in cash provided by operating activities. Cash provided
by operating activities will be negatively impacted in 2005 by the payment of
taxes associated with the sale of Texas Genco, the proceeds of which are
reflected in cash provided by investing activities in 2004 as discussed below.

Net cash provided by operating activities in 2003 increased $195 million
compared to 2002 primarily due to higher income tax refunds received of $170
million, partially offset by higher interest paid related to outstanding
borrowings of $130 million.

CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

Net cash provided by investing activities increased $2.2 billion in 2004 as
compared to 2003 primarily due to proceeds of $2.231 billion received from the
sale of Texas Genco's fossil generation assets in December 2004, partially
offset by increased capital expenditures of $34 million primarily related to our
Electric Transmission & Distribution and Other Operations business segments.

Net cash used in investing activities decreased $9 million during 2003
compared to 2002 due primarily to decreased capital expenditures in our Electric
Transmission & Distribution business segment primarily resulting from process
improvements that included revised construction and design standards.

CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

In 2004, debt payments exceeded net loan proceeds by $2.0 billion. Proceeds
received from the sale of Texas Genco's fossil generation assets in December
2004 and the retail clawback payment from RRI as discussed above were used to
retire a $915 million term loan, pay down $944 million in borrowings under our
revolving credit facility and retire $375 million of trust preferred securities.
As of December 31, 2004, we had borrowings of $239 million under our revolving
credit facility which were used to fund a portion of the $420 million pension
contribution made in December 2004.

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In 2003, debt payments exceeded net loan proceeds by $338 million. In 2002,
net loan proceeds exceeded debt payments by $1.1 billion. Additionally, common
stock dividends paid by us in 2003 were $202 million less than in 2002. Since
the beginning of 2003, the terms of our credit facility limited the common stock
dividend to $0.10 per share per quarter. This dividend limitation was eliminated
in the new $1 billion credit facility entered into in March 2005.

FUTURE SOURCES AND USES OF CASH

Our liquidity and capital requirements are affected primarily by our
results of operations, capital expenditures, debt service requirements, tax
payments, working capital needs, various regulatory actions and appeals relating
to such regulatory actions. Our principal cash requirements during 2005,
excluding the requirements of Texas Genco, include the following:

- approximately $655 million of capital expenditures;

- an estimated $77 million in refunds by CenterPoint Houston of excess
mitigation credits (assuming they are terminated as of April 29, 2005);

- dividend payments on CenterPoint Energy common stock and debt service
payments;

- $1.8 billion of maturing long-term debt, including $47 million of
transition bonds; and

- income tax payments, including approximately $430 million in the first
quarter of 2005.

Significant cash inflows in 2005 are expected to include the following:

- cash proceeds of approximately $1.8 from the issuance of transition
bonds; and

- cash proceeds of $700 million from the sale of Texas Genco.

We expect that borrowings under our credit facilities and anticipated cash
flows from operations will be sufficient to meet our cash needs for 2005.
CenterPoint Houston's $1.31 billion term loan requires the proceeds from the
issuance of transition bonds to be used to reduce the term loan unless refused
by the lenders. CenterPoint Houston's $1.31 billion credit facility is expected
to be utilized if the $1.31 billion term loan matures prior to the issuance of
sufficient transition bonds. The credit facility requires that proceeds from the
issuance of transition bonds and certain new net indebtedness for borrowed money
issued by CenterPoint Houston in excess of $200 million be used to repay
borrowings under the credit facility.

The 1935 Act regulates our financing ability, as more fully described in
"-- Certain Contractual and Regulatory Limits on Ability to Issue Securities and
Pay Dividends on Our Common Stock" below.

(1) Contributions to the pension plan are not required in 2005; however, we
expect to contribute approximately $29 million to our postretirement
benefits plan in 2005 to fund a portion of our obligations in accordance
with rate orders or to fund pay-as-you-go costs associated with the plan.

(2) The amounts reflected for long-term debt obligations in the table above do
not include interest and have been updated to reflect the new credit
facilities established on March 7, 2005.

In October 2001, CenterPoint Houston was required by the Texas Utility
Commission to reverse the amount of redirected depreciation and accelerated
depreciation taken for regulatory purposes as allowed under the 1998 transition
plan and the Texas electric restructuring law. CenterPoint Houston recorded a
regulatory liability to reflect the prospective refund of the accelerated
depreciation and in January 2002 CenterPoint Houston began paying excess
mitigation credits, which were to be paid over a seven-year period. The annual
payment of excess mitigation credits is approximately $264 million. In January
2005, CenterPoint Houston filed a writ of mandamus petition with the Texas
Supreme Court asking that court to order the Texas Utility Commission to
terminate immediately the payment of all excess mitigation credits and to ensure
full recovery of all excess mitigation credits. Although we believe we have
meritorious arguments, a writ of mandamus is an extraordinary remedy and no
prediction can be made as to the ultimate outcome or timing of the mandamus
petition. If the Supreme Court denies our mandamus petition, we will continue to
pursue this issue through regular appellate mechanisms. On March 1, 2005, a
non-unanimous settlement was filed in Docket No. 30774, which involves the
adjustment of RRI's Price-to-Beat. Under the terms of that settlement, the
excess mitigation credits being paid by CenterPoint Houston would be terminated
as of April 29, 2005. The Texas Utility Commission approved the settlement on
March 9, 2005.

Off-Balance Sheet Arrangements. Other than operating leases, we have no
off-balance sheet arrangements. However, we do participate in a receivables
factoring arrangement. CERC Corp. has a bankruptcy remote subsidiary, which we
consolidate, which was formed for the sole purpose of buying receivables created
by CERC and selling those receivables to an unrelated third-party. This
transaction is accounted for as a sale of receivables under the provisions of
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities", and, as a result, the related receivables are
excluded from the Consolidated Balance Sheet. In January 2004, the $100 million
receivables facility was replaced with a $250 million receivables facility
terminating in January 2005. In January 2005, the facility was extended to
January 2006 and temporarily increased, for the period from January 2005 to June
2005, to $375 million. For additional information regarding this transaction
please read Note 2(i) to our consolidated financial statements.

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Credit Facilities. In March 2005, we replaced our $750 million revolving
credit facility with a $1 billion five-year revolving credit facility.
Borrowings may be made under the facility at LIBOR plus 100 basis points based
on current credit ratings. An additional utilization fee of 12.5 basis points
applies to borrowings any time more than 50% of the facility is utilized.
Changes in credit ratings would lower or raise the increment to LIBOR depending
on whether ratings improved or were lowered. The facility contains covenants,
including a debt to earnings before interest, taxes, depreciation and
amortization (EBITDA) covenant and an EBITDA to interest covenant.

Borrowings under our credit facility are available upon customary terms and
conditions for facilities of this type, including a requirement that we
represent, except as described below, that no "material adverse change" has
occurred at the time of a new borrowing under this facility. A "material adverse
change" is defined as the occurrence of a material adverse change in our ability
to perform our obligations under the facility. The base line for any
determination of a relative material adverse change is our most recently audited
financial statements. At any time after the first time our credit ratings reach
at least BBB by Standard & Poor's Ratings Services, a division of The McGraw
Hill Companies (S&P), and Baa2 by Moody's Investors Service, Inc. (Moody's),
BBB+ by S&P and Baa3 by Moody's, or BBB- by S&P and Baa1 by Moody's, or if the
drawing is to retire maturing commercial paper, we are not required to represent
as a condition to such drawing that no material adverse change has occurred or
that no litigation expected to have a material adverse effect has occurred.

Also in March 2005, CenterPoint Houston established a $200 million
five-year revolving credit facility. Borrowings may be made under the facility
at LIBOR plus 75 basis points based on CenterPoint Houston's current credit
rating. An additional utilization fee of 12.5 basis points applies to borrowings
any time more than 50% of the facility is utilized. Changes in credit ratings
would lower or raise the increment to LIBOR depending on whether ratings
improved or were lowered.

CenterPoint Houston also established a $1.31 billion credit facility in
March 2005. This facility is available to be utilized only to refinance
CenterPoint Houston's $1.31 billion term loan maturing in November 2005 in the
event that proceeds from the issuance of transition bonds are not sufficient to
repay such term loan. Drawings may be made under this credit facility until
November 2005, at which time any outstanding borrowings are converted to term
loans maturing in November 2007. Net proceeds from the issuance of transition
bonds and certain new net indebtedness for borrowed money issued by CenterPoint
Houston in excess of $200 million must be used to repay borrowings under the new
facility. Based on CenterPoint Houston's current credit ratings, borrowings
under the facility can be made at LIBOR plus 75 basis points. Changes in credit
ratings would lower or raise the increment to LIBOR depending on whether ratings
improved or were lowered. Any drawings under this facility must be secured by
CenterPoint Houston's general mortgage bonds in the same principal amount and
bearing the same interest rate as such drawings.

CenterPoint Houston's $200 million and $1.31 billion credit facilities each
contain covenants, including a debt to total capitalization covenant of 68% and
an EBITDA to interest covenant. Borrowings under CenterPoint Houston's $200
million credit facility and its $1.31 billion credit facility are available
notwithstanding that a material adverse change has occurred or litigation that
could be expected to have a material adverse effect has occurred, so long as
other customary terms and conditions are satisfied.

In February 2005, Genco LP also established a $75 million term loan
facility under which borrowings may be made for working capital purposes at
LIBOR plus 50 basis points. Two drawings aggregating $75 million may be made
under the facility which matures on the earlier of August 2005 or the closing of
the final step of the Texas Genco sale. An initial draw of $59 million was made
in February 2005. This facility is secured by a lien on Texas Genco's equity and
the partnership interests in its subsidiaries and cash collateral accounts set
up in connection with the sale of Texas Genco's coal, lignite and gas-fired
generation assets.

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As of March 11, 2005, we had the following credit facilities (in millions):

Temporary Investments. On December 31, 2004, we had temporary external
investments of $144 million, of which $22 million were investments of Texas
Genco and are included in current assets of discontinued operations in the
Consolidated Balance Sheets.

Money Pools. We have two "money pools" through which our participating
subsidiaries can borrow or invest on a short-term basis. Funding needs are
aggregated and external borrowing or investing is based on the net cash
position. Following Texas Genco's certification by the FERC as an "exempt
wholesale generator" under the 1935 Act in October 2003, it could no longer
participate with our regulated subsidiaries in the same money pool. In October
2003, we established our second money pool in which Texas Genco and its
subsidiaries are currently the sole participants.

The net funding requirements of the money pool in which our regulated
subsidiaries participate are expected to be met with borrowings under
CenterPoint Energy's revolving credit facility.

Except in an emergency situation (in which case we could provide funding
pursuant to applicable SEC rules), we would be required to obtain approval from
the SEC to issue and sell securities for purposes of funding Texas Genco's
operations via the money pool established in October 2003. We do not currently
expect to fund the operations of Texas Genco via the money pool. A $75 million
credit facility, established in February 2005 at a subsidiary of Texas Genco, is
expected to be used to fund Texas Genco's operations.

The terms of both money pools are in accordance with requirements
applicable to registered public utility holding companies under the 1935 Act and
under an order from the SEC relating to our financing activities and those of
our subsidiaries on June 30, 2003 (June 2003 Financing Order). This order
expires in June 2005; however, we will seek appropriate approval for the money
pool prior to that date.

Impact on Liquidity of a Downgrade in Credit Ratings. As of March 1, 2005,
Moody's, S&P, and Fitch, Inc. (Fitch) had assigned the following credit ratings
to senior debt of CenterPoint Energy and certain subsidiaries:

(1) A "negative" outlook from Moody's reflects concerns over the next 12 to 18
months which will either lead to a review for a potential downgrade or a
return to a stable outlook. A "stable" outlook from Moody's

57

indicates that Moody's does not expect to put the rating on review for an
upgrade or downgrade within 18 months from when the outlook was assigned or
last affirmed.

(2) An S&P rating outlook assesses the potential direction of a long-term credit
rating over the intermediate to longer term.

(3) A "stable" outlook from Fitch encompasses a one-to-two year horizon as to
the likely ratings direction.

We cannot assure you that these ratings will remain in effect for any given
period of time or that one or more of these ratings will not be lowered or
withdrawn entirely by a rating agency. We note that these credit ratings are not
recommendations to buy, sell or hold our securities and may be revised or
withdrawn at any time by the rating agency. Each rating should be evaluated
independently of any other rating. Any future reduction or withdrawal of one or
more of our credit ratings could have a material adverse impact on our ability
to obtain short- and long-term financing, the cost of such financings and the
execution of our commercial strategies.

A decline in credit ratings would increase borrowing costs under our $1
billion credit facility, CenterPoint Houston's $200 million credit facility and
its $1.31 billion credit facility and CERC's $250 million revolving credit
facility. A decline in credit ratings would also increase the interest rate on
long-term debt to be issued in the capital markets and would negatively impact
our ability to complete capital market transactions. If we were unable to
maintain an investment-grade rating from at least one rating agency, as a
registered public utility holding company we would be required to obtain further
approval from the SEC for any additional capital markets transactions as more
fully described in "-- Certain Contractual and Regulatory Limits on Ability to
Issue Securities and Pay Dividends on Our Common Stock" below. Additionally, a
decline in credit ratings could increase cash collateral requirements and reduce
margins of our Natural Gas Distribution business segment.

As described above under "-- Credit Facilities," our revolving credit
facility contains a "material adverse change" clause that could impact our
ability to make new borrowings under this facility. CERC Corp.'s credit facility
also contains a "material adverse change" clause which relates to CERC Corp.'s
ability to perform its obligations under the credit agreement. Texas Genco's
term loan facility contains a "material adverse change" clause that could impact
the second borrowing under the facility. The clause relates to the business,
condition (financial or otherwise), operations, performance or properties of
Texas Genco. Borrowings under CenterPoint Houston's $200 million credit facility
and its $1.3 billion facility are available notwithstanding that a material
adverse change has occurred or litigation that could be expected to have a
material adverse effect has occurred.

In September 1999, we issued 2.0% Zero-Premium Exchangeable Subordinated
Notes due 2029 (ZENS) having an original principal amount of $1.0 billion. Each
ZENS note is exchangeable at the holder's option at any time for an amount of
cash equal to 95% of the market value of the reference shares of Time Warner
Inc. (TW Common) attributable to each ZENS note. If our creditworthiness were to
drop such that ZENS note holders thought our liquidity was adversely affected or
the market for the ZENS notes were to become illiquid, some ZENS noteholders
might decide to exchange their ZENS notes for cash. Funds for the payment of
cash upon exchange could be obtained from the sale of the shares of TW Common
that we own or from other sources. We own shares of TW Common equal to 100% of
the reference shares used to calculate our obligation to the holders of the ZENS
notes. ZENS note exchanges result in a cash outflow because deferred tax
liabilities related to the ZENS notes and TW Common shares become current tax
obligations when ZENS notes are exchanged and TW Common shares are sold.

CenterPoint Energy Gas Services, Inc. (CEGS), a wholly owned subsidiary of
CERC Corp., provides comprehensive natural gas sales and services to industrial
and commercial customers that are primarily located within or near the
territories served by our pipelines and natural gas distribution subsidiaries.
In order to hedge its exposure to natural gas prices, CEGS has agreements with
provisions standard for the industry that establish credit thresholds and
require a party to provide additional collateral on two business days' notice
when that party's rating or the rating of a credit support provider for that
party (CERC Corp. in this case) falls below those levels. As of December 31,
2004, the senior unsecured debt of CERC Corp. was rated BBB

58

by S&P and Ba1 by Moody's. We estimate that as of December 31, 2004, unsecured
credit limits extended to CEGS by counterparties could aggregate $100 million;
however, utilized credit capacity is significantly lower.

Cross Defaults. Under our revolving credit facility, a payment default on,
or a non-payment default that permits acceleration of, any indebtedness
exceeding $50 million by us or any of our significant subsidiaries will cause a
default. Pursuant to the indenture governing our senior notes, a payment default
by us, CERC Corp. or CenterPoint Houston in respect of, or an acceleration of,
borrowed money and certain other specified types of obligations, in the
aggregate principal amount of $50 million will cause a default. As of February
28, 2005, we had issued five series of senior notes aggregating $1.4 billion in
principal amount under this indenture. A default by CenterPoint Energy would not
trigger a default under our subsidiaries' debt instruments or bank credit
facilities.

Other Factors that Could Affect Cash Requirements. In addition to the
above factors, our liquidity and capital resources could be affected by:

- acceleration of payment dates on certain gas supply contracts under
certain circumstances, as a result of increased gas prices and
concentration of suppliers;

- increased costs related to the acquisition of gas for storage;

- increases in interest expense in connection with debt refinancings;

- various regulatory actions;

- the ability of RRI and its subsidiaries to satisfy their obligations as
the principal customers of CenterPoint Houston and in respect of RRI's
indemnity obligations to us and our subsidiaries; and

- various of the risks identified in "Risk Factors".

Certain Contractual and Regulatory Limits on Ability to Issue Securities
and Pay Dividends on Our Common Stock. Limitations imposed on us as a
registered public utility holding company under the 1935 Act affect our ability
to issue securities, pay dividends on our common stock or take other actions
that affect our capitalization.

The secured term loan and each of the credit facilities of CenterPoint
Houston limits CenterPoint Houston's debt, excluding transition bonds, as a
percentage of its total capitalization to 68%. CERC Corp.'s bank facility and
its receivables facility limit CERC's debt as a percentage of its total
capitalization to 60% and contain an EBITDA to interest covenant. Our $1 billion
credit facility contains a debt to EBITDA covenant and an EBITDA to interest
covenant. CenterPoint Houston's $1.31 billion and $200 million credit facilities
also contain EBITDA to interest covenants.

We are a registered public utility holding company under the 1935 Act. The
1935 Act and related rules and regulations impose a number of restrictions on
our activities and those of our subsidiaries other than Texas Genco. The 1935
Act, among other things, limits our ability and the ability of our regulated
subsidiaries to issue debt and equity securities without prior authorization,
restricts the source of dividend payments to current and retained earnings
without prior authorization, regulates sales and acquisitions of certain assets
and businesses and governs affiliated service, sales and construction contracts.

The June 2003 Financing Order is effective until June 30, 2005.
Additionally, we have received several subsequent orders which provide
additional financing authority. These orders establish limits on the amount of
external debt and equity securities that can be issued by us and our regulated
subsidiaries without additional authorization but generally permit us to
refinance our existing obligations and those of our regulated subsidiaries. Each
of us and our subsidiaries is in compliance with the authorized limits.
Discussed below are the incremental amounts of debt and equity that we are
authorized to issue after giving effect to our capital

59

markets transactions in 2003 and 2004. The orders also permit utilization of
undrawn credit facilities at CenterPoint Energy and CERC. As of February 28,
2005:

- CenterPoint Energy is authorized to issue an additional aggregate $1.7
billion of debt securities and $875 million of preferred stock and
preferred securities;

- CenterPoint Houston is authorized to issue an additional aggregate $273
million of debt and an aggregate $250 million of preferred stock and
preferred securities; and

- CERC is authorized to issue an additional $2 million of debt and an
additional aggregate $250 million of preferred stock and preferred
securities.

The SEC has reserved jurisdiction over, and must take further action to
permit, the issuance of $478 million of additional debt at CenterPoint Energy,
$430 million of additional debt at CERC and $250 million of additional debt at
CenterPoint Houston.

The orders require that if we or any of our regulated subsidiaries issue
securities that are rated by a nationally recognized statistical rating
organization (NRSRO), the security to be issued must obtain an investment grade
rating from at least one NRSRO and, as a condition to such issuance, all
outstanding rated securities of the issuer and of CenterPoint Energy must be
rated investment grade by at least one NRSRO. The orders also contain certain
requirements for interest rates, maturities, issuance expenses and use of
proceeds.

The 1935 Act limits the payment of dividends to payment from current and
retained earnings unless specific authorization is obtained to pay dividends
from other sources. The SEC has reserved jurisdiction over payment of $500
million of dividends from CenterPoint Energy's unearned surplus or capital.
Further authorization would be required to make those payments. As of December
31, 2004, we had a retained deficit on our Consolidated Balance Sheets. We
recorded an after-tax loss of approximately $214 million in 2004 related to the
sale of our remaining interest in Texas Genco. In addition, we recorded an
after-tax extraordinary loss of $977 million in 2004 related to the 2004 True-Up
Proceeding. Portions of these losses recorded in periods prior to the fourth
quarter of 2004 reduced our earnings below the level required for us to continue
paying our current quarterly dividends out of current earnings as required under
our SEC financing order. However, in May 2004, we received an order from the SEC
under the 1935 Act authorizing us to continue to pay our current quarterly
dividend in the second and third quarters of 2004 out of capital or unearned
surplus in the event we had such losses. We declared a dividend in the fourth
quarter of 2004 out of current earnings. If our earnings for subsequent quarters
are insufficient to pay dividends from current earnings, additional authority
would be required from the SEC for payment of the quarterly dividend from
capital or unearned surplus, but there can be no assurance that the SEC would
authorize such payments. These losses would delay the timing of our achievement
of a ratio of common equity to total capitalization of 30%, as generally
required by the SEC under the 1935 Act. Accordingly, we may issue equity and
take other actions to achieve a future equity capitalization of 30%. The June
2003 Financing Order also requires that CenterPoint Houston and CERC maintain a
ratio of common equity to total capitalization of 30%.

Other Factors Affecting the Upstreaming of Cash from Subsidiaries.
CenterPoint Houston's term loan, subject to certain exceptions, limits the
application of proceeds from capital markets transactions over $200 million by
CenterPoint Houston to repayment of debt existing in November 2002.

CenterPoint Houston will distribute recovery of the true-up components not
used to repay CenterPoint Houston's indebtedness to us through the payment of
dividends. CenterPoint Houston requires SEC action to approve any dividends in
excess of its current and retained earnings. To maintain CenterPoint Houston's
capital structure at the appropriate levels, we may reinvest funds in
CenterPoint Houston in the form of equity contributions or intercompany loans.
Under the orders described under "-- Certain Contractual and Regulatory Limits
on Ability to Issue Securities and Pay Dividends on Our Common Stock,"
CenterPoint Houston's member's equity as a percentage of total capitalization
generally must be at least 30%, although the SEC has permitted the percentage to
be below this level for other companies taking into account non-recourse
securitization debt as a component of capitalization.

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CRITICAL ACCOUNTING POLICIES

A critical accounting policy is one that is both important to the
presentation of our financial condition and results of operations and requires
management to make difficult, subjective or complex accounting estimates. An
accounting estimate is an approximation made by management of a financial
statement element, item or account in the financial statements. Accounting
estimates in our historical consolidated financial statements measure the
effects of past business transactions or events, or the present status of an
asset or liability. The accounting estimates described below require us to make
assumptions about matters that are highly uncertain at the time the estimate is
made. Additionally, different estimates that we could have used or changes in an
accounting estimate that are reasonably likely to occur could have a material
impact on the presentation of our financial condition or results of operations.
The circumstances that make these judgments difficult, subjective and/or complex
have to do with the need to make estimates about the effect of matters that are
inherently uncertain. Estimates and assumptions about future events and their
effects cannot be predicted with certainty. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances, the results of which form the basis for making
judgments. These estimates may change as new events occur, as more experience is
acquired, as additional information is obtained and as our operating environment
changes. Our significant accounting policies are discussed in Note 2 to our
consolidated financial statements. We believe the following accounting policies
involve the application of critical accounting estimates. Accordingly, these
accounting estimates have been reviewed and discussed with the audit committee
of the board of directors.

ACCOUNTING FOR RATE REGULATION

SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation"
(SFAS No. 71), provides that rate-regulated entities account for and report
assets and liabilities consistent with the recovery of those incurred costs in
rates if the rates established are designed to recover the costs of providing
the regulated service and if the competitive environment makes it probable that
such rates can be charged and collected. Application of SFAS No. 71 to the
electric generation portion of our business was discontinued as of June 30,
1999. Our Electric Transmission & Distribution business continues to apply SFAS
No. 71 which results in our accounting for the regulatory effects of recovery of
stranded costs and other regulatory assets resulting from the unbundling of the
transmission and distribution business from our electric generation operations
in our consolidated financial statements. Certain expenses and revenues subject
to utility regulation or rate determination normally reflected in income are
deferred on the balance sheet and are recognized in income as the related
amounts are included in service rates and recovered from or refunded to
customers. Significant accounting estimates embedded within the application of
SFAS No. 71 with respect to our Electric Transmission & Distribution business
segment relate to $1.9 billion of recoverable electric generation-related
regulatory assets as of December 31, 2004. These costs are recoverable under the
provisions of the Texas electric restructuring law. Based on our analysis of the
Texas Utility Commission's final order in the 2004 True-Up Proceeding, we
recorded an after-tax charge to earnings in 2004 of approximately $977 million
to write-down our electric generation-related regulatory assets to their
realizable value, which is reflected as an extraordinary loss in the Statements
of Consolidated Operations.

IMPAIRMENT OF LONG-LIVED ASSETS AND INTANGIBLES

We review the carrying value of our long-lived assets, including goodwill
and identifiable intangibles, whenever events or changes in circumstances
indicate that such carrying values may not be recoverable, and annually for
goodwill as required by SFAS No. 142, "Goodwill and Other Intangible Assets." No
impairment of goodwill was indicated based on our analysis as of January 1,
2004. Unforeseen events and changes in circumstances and market conditions and
material differences in the value of long-lived assets and intangibles due to
changes in estimates of future cash flows, regulatory matters and operating
costs could negatively affect the fair value of our assets and result in an
impairment charge.

Fair value is the amount at which the asset could be bought or sold in a
current transaction between willing parties and may be estimated using a number
of techniques, including quoted market prices or valuations by third parties,
present value techniques based on estimates of cash flows, or multiples of
earnings

61

or revenue performance measures. The fair value of the asset could be different
using different estimates and assumptions in these valuation techniques.

We recorded an after-tax loss of approximately $214 million in 2004 related
to the sale of our remaining 81% interest in Texas Genco.

UNBILLED ENERGY REVENUES

Revenues related to the sale and/or delivery of electricity or natural gas
(energy) are generally recorded when energy is delivered to customers. However,
the determination of energy sales to individual customers is based on the
reading of their meters, which is performed on a systematic basis throughout the
month. At the end of each month, amounts of energy delivered to customers since
the date of the last meter reading are estimated and the corresponding unbilled
revenue is estimated. Unbilled electricity delivery revenue is estimated each
month based on daily supply volumes, applicable rates and analyses reflecting
significant historical trends and experience. Unbilled natural gas sales are
estimated based on estimated purchased gas volumes, estimated lost and
unaccounted for gas and tariffed rates in effect. As additional information
becomes available, or actual amounts are determinable, the recorded estimates
are revised. Consequently, operating results can be affected by revisions to
prior accounting estimates.

PENSION AND OTHER RETIREMENT PLANS

We sponsor pension and other retirement plans in various forms covering all
employees who meet eligibility requirements. We use several statistical and
other factors which attempt to anticipate future events in calculating the
expense and liability related to our plans. These factors include assumptions
about the discount rate, expected return on plan assets and rate of future
compensation increases as estimated by management, within certain guidelines. In
addition, our actuarial consultants use subjective factors such as withdrawal
and mortality rates to estimate these factors. The actuarial assumptions used
may differ materially from actual results due to changing market and economic
conditions, higher or lower withdrawal rates or longer or shorter life spans of
participants. These differences may result in a significant impact to the amount
of pension expense recorded. Please read "-- Other Significant
Matters -- Pension Plans" for further discussion.

NEW ACCOUNTING PRONOUNCEMENTS

See Note 2(n) to the consolidated financial statements, incorporated herein
by reference, for a discussion of new accounting pronouncements that affect us.

OTHER SIGNIFICANT MATTERS

Pension Plan. As discussed in Note 9(b) to our consolidated financial
statements, we maintain a non-contributory pension plan covering substantially
all employees. Employer contributions are based on actuarial computations that
establish the minimum contribution required under the Employee Retirement Income
Security Act of 1974 (ERISA) and the maximum deductible contribution for income
tax purposes. At December 31, 2004, the projected benefit obligation exceeded
the market value of plan assets by $53 million; however, the market value of the
plan assets exceeded the accumulated benefit obligation by $22 million. Changes
in interest rates and the market values of the securities held by the plan
during 2005 could materially, positively or negatively, change our funded status
and affect the level of pension expense and required contributions in 2006 and
beyond.

In connection with the sale of our 81% interest in Texas Genco, a separate
pension plan was established for Texas Genco on September 1, 2004 and we
transferred a net pension liability of approximately $68 million to Texas Genco.
In October 2004, Texas Genco received an allocation of assets from our pension
plan pursuant to rules and regulations under ERISA.

62

During 2003 and 2004, we have not been required to make contributions to
our pension plan. We have made voluntary contributions of $23 million and $476
million in 2003 and 2004, respectively.

Under the terms of our pension plan, we reserve the right to change, modify
or terminate the plan. Our funding policy is to review amounts annually and
contribute an amount at least equal to the minimum contribution required under
ERISA and the Internal Revenue Code.

In accordance with SFAS No. 87, "Employers' Accounting for Pensions,"
changes in pension obligations and assets may not be immediately recognized as
pension costs in the income statement, but generally are recognized in future
years over the remaining average service period of plan participants. As such,
significant portions of pension costs recorded in any period may not reflect the
actual level of benefit payments provided to plan participants.

Pension costs were $35 million, $90 million and $80 million for 2002, 2003
and 2004, respectively. For 2002, a pension benefit of $4 million was recorded
related to RRI's participants. Pension benefit for RRI's participants is
reflected in the Statement of Consolidated Operations as discontinued
operations. In addition, included in the costs for 2002, 2003 and 2004 are $15
million, $17 million and $11 million, respectively, of expense related to Texas
Genco participants. Pension expense for Texas Genco participants is reflected in
the Statement of Consolidated Operations as discontinued operations.

Additionally, we maintain a non-qualified benefit restoration plan which
allows participants to retain the benefits to which they would have been
entitled under our non-contributory pension plan except for the federally
mandated limits on qualified plan benefits or on the level of compensation on
which qualified plan benefits may be calculated. The expense associated with
this non-qualified plan was $9 million, $8 million and $6 million in 2002, 2003
and 2004, respectively. Included in the cost for 2002 is $3 million of expense
related to RRI's participants, which is reflected in discontinued operations in
the Statements of Consolidated Operations.

The calculation of pension expense and related liabilities requires the use
of assumptions. Changes in these assumptions can result in different expense and
liability amounts, and future actual experience can differ from the assumptions.
Two of the most critical assumptions are the expected long-term rate of return
on plan assets and the assumed discount rate.

As of December 31, 2004, the expected long-term rate of return on plan
assets was 8.5%, a reduction from the 9.0% rate assumed as of December 31, 2003.
We believe that our actual asset allocation, on average, will approximate the
targeted allocation and the estimated return on net assets. We regularly review
our actual asset allocation and periodically rebalance plan assets as
appropriate.

As of December 31, 2004, the projected benefit obligation was calculated
assuming a discount rate of 5.75%, which is a 0.5% decline from the 6.25%
discount rate assumed in 2003. The discount rate was determined by reviewing
yields on high-quality bonds that receive one of the two highest ratings given
by a recognized rating agency and the expected duration of pension obligations
specific to the characteristics of our plan.

Pension expense for 2005, including the benefit restoration plan, is
estimated to be $37 million based on an expected return on plan assets of 8.5%
and a discount rate of 5.75% as of December 31, 2004. If the expected return
assumption were lowered by 0.5% (from 8.5% to 8.0%), 2005 pension expense would
increase by approximately $8 million.

Due to significant funding that occurred during 2004, pension plan assets
(excluding the unfunded benefit restoration plan) exceed the accumulated benefit
obligation, which enabled us to reverse a charge to comprehensive income of $350
million, net of tax. However, if the discount rate were lowered by 0.5% (from
5.75% to 5.25%), the assumption change would increase our projected benefit
obligation, accumulated benefit obligation and 2005 pension expense by
approximately $106 million, $100 million and $7 million, respectively. In
addition, the assumption change would have significant impacts on our
Consolidated Balance Sheet by changing the pension asset recorded as of December
31, 2004 of $610 million to a pension liability of $78 million, offset by a
charge to comprehensive income in 2004 of $447 million, net of tax.

63

For the benefit restoration plan, if the discount rate were lowered by 0.5%
(from 5.75% to 5.25%), the assumption change would increase our projected
benefit obligation, accumulated benefit obligation and 2005 pension expense by
approximately $4 million, $3 million, and less than $1 million, respectively. In
addition, the assumption change would result in a charge to comprehensive income
of approximately $2 million.

Future changes in plan asset returns, assumed discount rates and various
other factors related to the pension plan will impact our future pension expense
and liabilities. We cannot predict with certainty what these factors will be.

In October 2004, the American Jobs Creation Act (AJCA) was signed into law.
The AJCA made significant changes in the taxation of nonqualified deferred
compensation with new Code Section 409A. Non-compliance with Section 409A can
result in increased federal income taxes on nonqualified deferred compensation
for employees. We are currently analyzing the impact of Section 409A and related
guidance issued by the Treasury Department and the Internal Revenue Service, on
our non-qualified plans and agreements that provide for deferred compensation.
Such plans or agreements may require amendment or modification to comply with
the new law.

Quasi-Reorganization. On December 30, 2004, our Board of Directors adopted
a plan for an accounting reorganization of the company, to be effective as of
January 1, 2005. At the same time, the Manager of CenterPoint Houston adopted a
similar plan for CenterPoint Houston. These plans were adopted in order to
eliminate the accumulated retained earnings deficit that exists at both
companies.

The plan we adopted required: (1) a report to be presented to and reviewed
by our Board of Directors on or before February 28, 2005 as to the completion of
the valuation analysis of the accounting reorganization and the effects of the
accounting reorganization on our financial statements, (2) a determination that
the accounting reorganization is in accordance with accounting principles
generally accepted in the United States, and (3) that there be no determination
by our Board of Directors on or before February 28, 2005 that the accounting
reorganization is inconsistent with our regulatory obligations. We are
continuing to work to complete the valuation analysis and the effects on our
financial statements of the accounting reorganization, and on February 23, 2005,
our Board of Directors extended until May 10, 2005 the time for making the
determination described in (3) of the preceding sentence.

An accounting reorganization, sometimes called a "quasi-reorganization,"
allows a company to extinguish a negative retained earnings balance. It involves
restating a company's assets and its liabilities to their fair values. The
negative balance in the retained earnings account is then brought to zero
through a reduction in the other capital accounts, giving the company a "fresh
start" with a zero balance in retained earnings. As of December 31, 2004, we had
an accumulated retained earnings deficit of approximately $1.7 billion. That
deficit stemmed from the accounting effects of (1) the distribution of our
ownership interest in RRI to our shareholders in September 2002, (2) the
extraordinary loss recorded in connection with the Texas Utility Commission's
order related to the 2004 True-Up Proceeding and (3) the loss on discontinued
operations that was recorded in connection with our sale of Texas Genco. In
addition to eliminating the accumulated deficit in retained earnings and
restating assets and liabilities to fair value, if a quasi-reorganization were
implemented, we and CenterPoint Houston would be required to implement any
accounting standards that have been issued but not yet adopted.

We and CenterPoint Houston are seeking to eliminate the negative retained
earnings balance because restrictions contained in the 1935 Act require
registered public utility holding companies and their subsidiaries, like us and
CenterPoint Houston, to obtain express authorization from the SEC to pay
dividends when current or retained earnings are insufficient to do so.
Eliminating the negative retained earnings balance will permit current earnings
not utilized to pay dividends to more quickly build up a retained earnings
balance. Under 1935 Act regulations, we could pay dividends out of this balance
during periods when current earnings may not be adequate to do so.

In addition, we have undertaken an obligation under the 1935 Act to achieve
a minimum ratio of common equity to total capitalization of thirty percent,
which, depending on the results of the restatement of assets and liabilities
under the accounting reorganization, could be affected by, and will be taken
into

64

consideration by the Board of Directors in evaluating the effects of, the
accounting reorganization. We will seek such authority as may be required under
the 1935 Act in connection with the quasi-reorganization.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

IMPACT OF CHANGES IN INTEREST RATES AND ENERGY COMMODITY PRICES

We are exposed to various market risks. These risks arise from transactions
entered into in the normal course of business and are inherent in our
consolidated financial statements. Most of the revenues and income from our
business activities are impacted by market risks. Categories of market risk
include exposure to commodity prices through non-trading activities, interest
rates and equity prices. A description of each market risk is set forth below:

- Commodity price risk results from exposures to changes in spot prices,
forward prices and price volatilities of commodities, such as natural gas
and other energy commodities risk.

- Interest rate risk primarily results from exposures to changes in the
level of borrowings and changes in interest rates.

Management has established comprehensive risk management policies to
monitor and manage these market risks. We manage these risk exposures through
the implementation of our risk management policies and framework. We manage our
exposures through the use of derivative financial instruments and derivative
commodity instrument contracts. During the normal course of business, we review
our hedging strategies and determine the hedging approach we deem appropriate
based upon the circumstances of each situation.

Derivative instruments such as futures, forward contracts, swaps and
options derive their value from underlying assets, indices, reference rates or a
combination of these factors. These derivative instruments include negotiated
contracts, which are referred to as over-the-counter derivatives, and
instruments that are listed and traded on an exchange.

Derivative transactions are entered into in our non-trading operations to
manage and hedge certain exposures, such as exposure to changes in gas prices.
We believe that the associated market risk of these instruments can best be
understood relative to the underlying assets or risk being hedged.

INTEREST RATE RISK

We have outstanding long-term debt, bank loans, mandatory redeemable
preferred securities of a subsidiary trust holding solely our junior
subordinated debentures (trust preferred securities), some lease obligations and
our obligations under our 2.0% Zero-Premium Exchangeable Subordinated Notes due
2029 (ZENS) that subject us to the risk of loss associated with movements in
market interest rates. In 2003, we had interest rate swaps in place in order to
hedge portions of our floating-rate debt.

Our floating-rate obligations aggregated $2.8 billion and $1.5 billion at
December 31, 2003 and 2004, respectively. If the floating interest rates were to
increase by 10% from December 31, 2004 rates, our combined interest expense
would increase by a total of $2 million each month in which such increase
continued.

At December 31, 2003 and 2004, we had outstanding fixed-rate debt
(excluding indexed debt securities) and trust preferred securities aggregating
$8.1 billion and $7.4 billion, respectively, in principal amount and having a
fair value of $8.6 billion and $8.1 billion, respectively. These instruments are
fixed-rate and, therefore, do not expose us to the risk of loss in earnings due
to changes in market interest rates (please read Note 8 to our consolidated
financial statements). However, the fair value of these instruments would
increase by approximately $350 million if interest rates were to decline by 10%
from their levels at December 31, 2004. In general, such an increase in fair
value would impact earnings and cash flows only if we were to reacquire all or a
portion of these instruments in the open market prior to their maturity.

65

As discussed in Note 6 to our consolidated financial statements, upon
adoption of SFAS No. 133 effective January 1, 2001, the ZENS obligation was
bifurcated into a debt component and a derivative component. The debt component
of $107 million at December 31, 2004 is a fixed-rate obligation and, therefore,
does not expose us to the risk of loss in earnings due to changes in market
interest rates. However, the fair value of the debt component would increase by
approximately $17 million if interest rates were to decline by 10% from levels
at December 31, 2004. Changes in the fair value of the derivative component,
$342 million at December 31, 2004, are recorded in our Statements of
Consolidated Operations and, therefore, we are exposed to changes in the fair
value of the derivative component as a result of changes in the underlying
risk-free interest rate. If the risk-free interest rate were to increase by 10%
from December 31, 2004 levels, the fair value of the derivative component would
increase by approximately $6 million, which would be recorded as an unrealized
loss in our Statements of Consolidated Operations.

CenterPoint Houston, as collection agent for the nuclear decommissioning
charge assessed on its transmission and distribution customers, contributed $2.9
million in both 2003 and 2004 to trusts established to fund Texas Genco's share
of the decommissioning costs for the South Texas Project. The securities held by
the trusts for decommissioning costs had an estimated fair value of $216 million
as of December 31, 2004, of which approximately 36% were debt securities that
subject Texas Genco to risk of loss of fair value with movements in market
interest rates. If interest rates were to increase by 10% from their levels at
December 31, 2004, the fair value of the fixed-rate debt securities would
decrease by approximately $1 million. Any unrealized gains or losses are
accounted for by Texas Genco as a long-term asset/liability as Texas Genco will
not benefit from any gains, and losses will be recovered through the rate-making
process.

EQUITY MARKET VALUE RISK

We are exposed to equity market value risk through our ownership of 21.6
million shares of TW Common, which we hold to facilitate our ability to meet our
obligations under the ZENS. Please read Note 6 to our consolidated financial
statements for a discussion of the effect of adoption of SFAS No. 133 on our
ZENS obligation and our historical accounting treatment of our ZENS obligation.
A decrease of 10% from the December 31, 2004 market value of TW Common would
result in a net loss of approximately $4 million, which would be recorded as a
loss in our Statements of Consolidated Operations.

As discussed above under "-- Interest Rate Risk," CenterPoint Houston
contributes to trusts established to fund Texas Genco's share of the
decommissioning costs for the South Texas Project, which held approximately 64%
of total assets in equity securities as of December 31, 2004. The equity
securities expose Texas Genco to losses in fair value. If the market prices of
the individual equity securities were to decrease by 10% from their levels at
December 31, 2004, the resulting loss to Texas Genco in fair value of these
securities would be approximately $14 million. Currently, the risk of an
economic loss is mitigated as discussed above under "-- Interest Rate Risk."

COMMODITY PRICE RISK FROM NON-TRADING ACTIVITIES

To reduce our commodity price risk from market fluctuations in the revenues
derived from the sale of natural gas and related transportation, we enter into
forward contracts, swaps and options (Non-Trading Energy Derivatives) in order
to hedge some expected purchases of natural gas and sales of natural gas (a
portion of which are firm commitments at the inception of the hedge).
Non-Trading Energy Derivatives are also utilized to fix the price of future
operational gas requirements.

We use derivative instruments as economic hedges to offset the commodity
exposure inherent in our businesses. The stand-alone commodity risk created by
these instruments, without regard to the offsetting effect of the underlying
exposure these instruments are intended to hedge, is described below. We measure
the commodity risk of our Non-Trading Energy Derivatives using a sensitivity
analysis. The sensitivity analysis performed on our Non-Trading Energy
Derivatives measures the potential loss in earnings based on a hypothetical 10%
movement in energy prices. A decrease of 10% in the market prices of energy
commodities from their December 31, 2003 levels would have decreased the fair
value of our Non-Trading Energy Derivatives by $50 million. A decrease of 10% in
the market prices of energy commodities from their

66

December 31, 2004 levels would have decreased the fair value of our Non-Trading
Energy Derivatives by $46 million.

The above analysis of the Non-Trading Energy Derivatives utilized for
hedging purposes does not include the favorable impact that the same
hypothetical price movement would have on our physical purchases and sales of
natural gas to which the hedges relate. Furthermore, the Non-Trading Energy
Derivative portfolio is managed to complement the physical transaction
portfolio, reducing overall risks within limits. Therefore, the adverse impact
to the fair value of the portfolio of Non-Trading Energy Derivatives held for
hedging purposes associated with the hypothetical changes in commodity prices
referenced above would be offset by a favorable impact on the underlying hedged
physical transactions, assuming:

- the Non-Trading Energy Derivatives are not closed out in advance of their
expected term;

- the Non-Trading Energy Derivatives continue to function effectively as
hedges of the underlying risk; and

If any of the above-mentioned assumptions ceases to be true, a loss on the
derivative instruments may occur, or the options might be worthless as
determined by the prevailing market value on their termination or maturity date,
whichever comes first. Non-Trading Energy Derivatives designated and effective
as hedges, may still have some percentage which is not effective. The change in
value of the Non-Trading Energy Derivatives that represents the ineffective
component of the hedges is recorded in our results of operations.

We have established a Risk Oversight Committee, comprised of corporate and
business segment officers, that oversees commodity price and credit risk
activities, including trading, marketing, risk management services and hedging
activities. The committee's duties are to establish commodity risk policies,
allocate risk capital, approve trading of new products and commodities, monitor
risk positions and ensure compliance with the risk management policies and
procedures and trading limits established by our board of directors.

Our policies prohibit the use of leveraged financial instruments. A
leveraged financial instrument, for this purpose, is a transaction involving a
derivative whose financial impact will be based on an amount other than the
notional amount or volume of the instrument.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
CenterPoint Energy, Inc.
Houston, Texas

We have audited the accompanying consolidated balance sheets of CenterPoint
Energy, Inc. and subsidiaries (the "Company") as of December 31, 2003 and 2004,
and the related consolidated statements of operations, comprehensive income,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 2004. Our audit also includes the financial statement
schedules listed in the Index at Item 15(a)(2). These financial statements and
the financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of CenterPoint Energy, Inc. and
subsidiaries at December 31, 2003 and 2004, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2004, in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.

We have also audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the effectiveness of the
Company's internal control over financial reporting as of December 31, 2004,
based on the criteria established in Internal Control -- Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated March 15, 2005 expressed an unqualified opinion on
management's assessment of the effectiveness of the Company's internal control
over financial reporting and an unqualified opinion on the effectiveness of the
Company's internal control over financial reporting.

As discussed in Note 3 to the consolidated financial statements and
pursuant to a plan to sell this subsidiary, the Company has presented its
electric generating operations as discontinued operations in accordance with
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets."

DELOITTE & TOUCHE LLP

Houston, Texas
March 15, 2005

68

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
CenterPoint Energy, Inc.
Houston, Texas

We have audited management's assessment, included in the accompanying
Annual Report on Internal Control Over Financial Reporting, that CenterPoint
Energy, Inc. and subsidiaries maintained effective internal control over
financial reporting as of December 31, 2004, based on the criteria established
in Internal Control -- Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. The Company's management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on management's
assessment and an opinion on the effectiveness of the Company's internal control
over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinions.

A company's internal control over financial reporting is a process designed
by, or under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial
reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any evaluation of
the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

In our opinion, management's assessment that the Company maintained
effective internal control over financial reporting as of December 31, 2004, is
fairly stated, in all material respects, based on the criteria established in
Internal Control -- Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2004, based on the criteria established in Internal
Control -- Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), consolidated financial
statements and financial statement schedules as of and for the year ended
December 31, 2004 for the Company and our report dated March 15, 2005 expressed
an unqualified opinion on those financial statements and financial statement
schedules and included an explanatory paragraph regarding the Company's
presentation of its electric generating operations as discontinued operations.

DELOITTE & TOUCHE LLP

Houston, Texas
March 15, 2005

69

MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL

OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate
internal control over financial reporting. Internal control over financial
reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the
Securities Exchange Act of 1934 as a process designed by, or under the
supervision of, the company's principal executive and principal financial
officers and effected by the company's board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that:

- Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of the
assets of the company;

- Provide reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and

- Provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the company's assets that
could have a material effect on the financial statements.

Management has designed its internal control over financial reporting to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America. Management's
assessment included review and testing of both the design effectiveness and
operating effectiveness of controls over all relevant assertions related to all
significant accounts and disclosures in the financial statements.

All internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation. Projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in Internal Control -- Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on our evaluation under the framework in Internal
Control -- Integrated Framework, our management has concluded that our internal
control over financial reporting was effective as of December 31, 2004.

Deloitte & Touche LLP, an independent registered public accounting firm,
has issued an audit report on our management's assessment of the effectiveness
of our internal control over financial reporting as of December 31, 2004 which
is included herein on page 69.

CenterPoint Energy, Inc. (CenterPoint Energy or the Company) is a public
utility holding company, created on August 31, 2002 as part of a corporate
restructuring of Reliant Energy, Incorporated (Reliant Energy) that implemented
certain requirements of the 1999 Texas Electric Choice Law (Texas electric
restructuring law) described below. In December 2000, Reliant Energy transferred
a significant portion of its unregulated businesses to Reliant Resources, Inc.,
now named Reliant Energy, Inc. (RRI), which, at the time, was a wholly owned
subsidiary of Reliant Energy.

On September 30, 2002, following RRI's initial public offering of
approximately 20% of its common stock in May 2001, CenterPoint Energy
distributed all of the shares of RRI common stock owned by CenterPoint Energy to
its common shareholders on a pro-rata basis (the RRI Distribution).

CenterPoint Energy is the successor to Reliant Energy for financial
reporting purposes under the Securities Exchange Act of 1934. The Company's
operating subsidiaries own and operate electric transmission and distribution
facilities, natural gas distribution facilities, interstate pipelines and
natural gas gathering, processing and treating facilities. CenterPoint Energy is
a registered public utility holding company under the Public Utility Holding
Company Act of 1935, as amended (1935 Act). The 1935 Act and related rules and
regulations impose a number of restrictions on the activities of the Company and
those of its subsidiaries. The 1935 Act, among other things, limits the ability
of the Company and its regulated subsidiaries to issue debt and equity
securities without prior authorization, restricts the source of dividend
payments to current and retained earnings without prior authorization, regulates
sales and acquisitions of certain assets and businesses and governs affiliated
service, sales and construction contracts.

As of December 31, 2004, the Company's indirect wholly owned subsidiaries
included:

- CenterPoint Energy Houston Electric, LLC (CenterPoint Houston), which
engages in the electric transmission and distribution business in a
5,000-square mile area of the Texas Gulf Coast that includes Houston; and

- CenterPoint Energy Resources Corp. (CERC Corp., and, together with its
subsidiaries, CERC), which owns gas distribution systems. The operations
of its local distribution companies are conducted through three
unincorporated divisions: Houston Gas, Minnesota Gas and Southern Gas
Operations. In 2004, the naming conventions of CERC's three
unincorporated divisions were changed in an effort to increase brand
recognition. CenterPoint Energy Arkla and the portion of CenterPoint
Energy Entex (Entex) located outside of the metropolitan Houston area
were renamed Southern Gas Operations. The metropolitan Houston portion of
Entex was renamed Houston Gas, and CenterPoint Energy Minnegasco was
renamed Minnesota Gas. Through wholly owned subsidiaries, CERC owns two
interstate natural gas pipelines and gas gathering systems, provides
various ancillary services, and offers variable and fixed price physical
natural gas supplies to commercial and industrial customers and natural
gas distributors.

In July 2004, the Company announced its agreement to sell its majority
owned subsidiary, Texas Genco Holdings, Inc. (Texas Genco), to Texas Genco LLC
(formerly known as GC Power Acquisition LLC), an entity owned in equal parts by
affiliates of The Blackstone Group, Hellman & Friedman LLC, Kohlberg Kravis
Roberts & Co. L.P. and Texas Pacific Group. On December 15, 2004, Texas Genco
completed the sale of its fossil generation assets (coal, lignite and gas-fired
plants) to Texas Genco LLC for $2.813 billion in cash. Following the sale, Texas
Genco distributed $2.231 billion in cash to the Company. Texas Genco's principal
remaining asset is its ownership interest in a nuclear generating facility. The
final step of the transaction, the merger of Texas Genco with a subsidiary of
Texas Genco LLC in exchange for an additional

76

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

cash payment to the Company of $700 million, is expected to close during the
first half of 2005, following receipt of approval from the Nuclear Regulatory
Commission (NRC).

(b) BASIS OF PRESENTATION

The consolidated financial statements have been prepared to reflect the
effect of the RRI Distribution on the CenterPoint Energy financial statements.
The consolidated financial statements present the RRI businesses (Wholesale
Energy, European Energy, Retail Energy and related corporate costs) as
discontinued operations, in accordance with Statement of Financial Accounting
Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" (SFAS No. 144).

In 2003, the Company sold all of its remaining Latin America operations.
The consolidated financial statements present these Latin America operations as
discontinued operations in accordance with SFAS No. 144.

In November 2003, the Company sold its district cooling services business
in the Houston central business district and related complementary energy
services to district cooling customers and others. The consolidated financial
statements present these operations as discontinued operations in accordance
with SFAS No. 144.

The Company recorded an after-tax loss of $214 million in 2004 related to
the sale of Texas Genco discussed in Note 3. In addition, as a result of this
transaction, any future earnings of Texas Genco will be offset by an increase in
the loss. The consolidated financial statements present these operations as
discontinued operations in accordance with SFAS No. 144.

The Company's reportable business segments include the following: Electric
Transmission & Distribution, Natural Gas Distribution, Pipelines and Gathering
and Other Operations. The electric transmission and distribution function
(CenterPoint Houston) is reported in the Electric Transmission & Distribution
business segment. Natural Gas Distribution consists of intrastate natural gas
sales to, and natural gas transportation and distribution for, residential,
commercial, industrial and institutional customers and non-rate regulated retail
gas marketing operations for commercial and industrial customers. Pipelines and
Gathering includes the interstate natural gas pipeline operations and the
natural gas gathering and pipeline services businesses. Other Operations
consists primarily of other corporate operations which support all of the
Company's business operations. The generation operations of CenterPoint Energy's
former integrated electric utility (Texas Genco) were previously reported in the
Electric Generation business segment, but have been reclassified as discontinued
operations in these financial statements as discussed above.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) RECLASSIFICATIONS AND USE OF ESTIMATES

In addition to the items discussed in Note 3, some amounts from the
previous years have been reclassified to conform to the 2004 presentation of
financial statements. These reclassifications do not affect net income.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

(b) PRINCIPLES OF CONSOLIDATION

The accounts of CenterPoint Energy and its wholly owned and majority owned
subsidiaries are included in the consolidated financial statements. All
significant intercompany transactions and balances are eliminated

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CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

in consolidation. The Company uses the equity method of accounting for
investments in entities in which the Company has an ownership interest between
20% and 50% and exercises significant influence. Other investments, excluding
marketable securities, are carried at cost.

(c) REVENUES

The Company records revenue for electricity delivery and natural gas sales
and services under the accrual method and these revenues are recognized upon
delivery to customers. Electricity deliveries not billed by month-end are
accrued based on daily supply volumes, applicable rates and analyses reflecting
significant historical trends and experience. Natural gas sales not billed by
month-end are accrued based upon estimated purchased gas volumes, estimated lost
and unaccounted for gas and currently effective tariff rates. The Pipelines and
Gathering business segment records revenues as transportation services are
provided.

(d) LONG-LIVED ASSETS AND INTANGIBLES

The Company records property, plant and equipment at historical cost. The
Company expenses repair and maintenance costs as incurred. Property, plant and
equipment includes the following:

The Company recognizes specifically identifiable intangibles, including
land use rights and permits, when specific rights and contracts are acquired.
The Company has no intangible assets with indefinite lives recorded as of
December 31, 2004 other than goodwill discussed below. The Company amortizes
other acquired intangibles on a straight-line basis over the lesser of their
contractual or estimated useful lives that range from 40 to 75 years for land
rights and 4 to 25 years for other intangibles.

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CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Amortization expense for other intangibles for 2002, 2003 and 2004 was $2
million in each year. Estimated amortization expense for the five succeeding
fiscal years is as follows (in millions):

The Company completed its annual evaluation of goodwill for impairment as
of January 1, 2004 and no impairment was indicated.

The Company periodically evaluates long-lived assets, including property,
plant and equipment, goodwill and specifically identifiable intangibles, when
events or changes in circumstances indicate that the carrying value of these
assets may not be recoverable. The determination of whether an impairment has
occurred is based on an estimate of undiscounted cash flows attributable to the
assets, as compared to the carrying value of the assets.

As a result of the Company's decision to sell its interest in Texas Genco
in July 2004, the Company recorded an after-tax loss of approximately $253
million in the third quarter of 2004. In the fourth quarter of 2004, the Company
reduced the expected loss on the sale of its interest in Texas Genco by $39
million to $214 million. For further discussion, see Note 3.

(e) REGULATORY ASSETS AND LIABILITIES

The Company applies the accounting policies established in SFAS No. 71,
"Accounting for the Effects of Certain Types of Regulation" (SFAS No. 71), to
the accounts of the Electric Transmission & Distribution business segment and
the utility operations of the Natural Gas Distribution business segment and to
some of the accounts of the Pipelines and Gathering business segment.

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CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following is a list of regulatory assets/liabilities reflected on the
Company's Consolidated Balance Sheets as of December 31, 2003 and 2004:

If events were to occur that would make the recovery of these assets and
liabilities no longer probable, the Company would be required to write-off or
write-down these regulatory assets and liabilities. During 2004, the Company
wrote-off net regulatory assets of $1.5 billion in response to the Texas Utility
Commission's order on CenterPoint Houston's final true-up application. For
further discussion of regulatory assets, see Note 4.

The Company's rate-regulated businesses recognize removal costs as a
component of depreciation expense in accordance with regulatory treatment. As of
December 31, 2003 and 2004, these removal costs of $647 million and $677
million, respectively, are classified as regulatory liabilities in the
Consolidated Balance Sheets. The Company has also identified other asset
retirement obligations that cannot be estimated because the assets associated
with the retirement obligations have an indeterminate life.

(f) DEPRECIATION AND AMORTIZATION EXPENSE

Depreciation is computed using the straight-line method based on economic
lives or a regulatory-mandated recovery period. Other amortization expense
includes amortization of regulatory assets and other intangibles. See Notes 2(e)
and 4(a) for additional discussion of these items.

The following table presents depreciation and other amortization expense
for 2002, 2003 and 2004.

(g) CAPITALIZATION OF INTEREST AND ALLOWANCE FOR FUNDS USED DURING
CONSTRUCTION

Allowance for funds used during construction (AFUDC) represents the
approximate net composite interest cost of borrowed funds and a reasonable
return on the equity funds used for construction. Although AFUDC increases both
utility plant and earnings, it is realized in cash through depreciation
provisions included in rates for subsidiaries that apply SFAS No. 71. Interest
and AFUDC for subsidiaries that apply SFAS No. 71 are capitalized as a component
of projects under construction and will be amortized over the assets' estimated
useful lives. During 2002, 2003 and 2004, the Company capitalized interest and
AFUDC of $5 million, $4 million and $4 million, respectively.

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CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(h) INCOME TAXES

The Company files a consolidated federal income tax return and follows a
policy of comprehensive interperiod income tax allocation. The Company uses the
liability method of accounting for deferred income taxes and measures deferred
income taxes for all significant income tax temporary differences. Investment
tax credits were deferred and are being amortized over the estimated lives of
the related property. For additional information regarding income taxes, see
Note 10.

(i) ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

Accounts receivable are net of an allowance for doubtful accounts of $31
million and $30 million at December 31, 2003 and 2004, respectively. The
provision for doubtful accounts in the Company's Statements of Consolidated
Operations for 2002, 2003 and 2004 was $26 million, $24 million and $27 million,
respectively.

In connection with CERC's November 2002 amendment and extension of its $150
million receivables facility, CERC Corp. formed a bankruptcy remote subsidiary
for the sole purpose of buying receivables created by CERC and selling those
receivables to an unrelated third-party. This transaction was accounted for as a
sale of receivables under the provisions of SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
(SFAS No. 140) and, as a result, the related receivables are excluded from the
Consolidated Balance Sheets. The bankruptcy remote subsidiary purchases
receivables with cash and subordinated notes. In July 2003, the subordinated
notes owned by CERC were pledged to a gas supplier to secure obligations
incurred in connection with the purchase of gas by CERC. Effective June 25,
2003, CERC reduced the purchase limit under the receivables facility from $150
million to $100 million. As of December 31, 2003, CERC had utilized $100 million
of its receivables facility.

In the first quarter of 2004, CERC replaced the receivables facility with a
$250 million committed one-year receivables facility. The bankruptcy remote
subsidiary continues to buy CERC's receivables and sell them to an unrelated
third-party, which transactions are accounted for as a sale of receivables under
SFAS No. 140. As of December 31, 2004, CERC had utilized $181 million of its
receivables facility.

The average outstanding balances on the receivables facilities were $16
million, $100 million and $190 million in 2002, 2003 and 2004, respectively.
Sales of receivables were approximately $0.2 billion, $1.2 billion and $2.4
billion in 2002, 2003 and 2004, respectively.

(j) INVENTORY

Inventory consists principally of materials and supplies and natural gas.
Inventories used in the retail natural gas distribution operations are primarily
valued at the lower of average cost or market.

In accordance with SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (SFAS No. 115), the Company reports
"available-for-sale" securities at estimated fair value within other long-term
assets in the Company's Consolidated Balance Sheets and any unrealized gain or
loss, net of tax, as

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CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

a separate component of shareholders' equity and accumulated other comprehensive
income. In accordance with SFAS No. 115, the Company reports "trading"
securities at estimated fair value in the Company's Consolidated Balance Sheets,
and any unrealized holding gains and losses are recorded as other income
(expense) in the Company's Statements of Consolidated Operations.

As of December 31, 2003 and 2004, Texas Genco held debt and equity
securities in its nuclear decommissioning trust, which is reported at its fair
value of $189 million and $216 million, respectively, in the Company's
Consolidated Balance Sheets in non-current assets of discontinued operations.
Any unrealized losses or gains are accounted for as a non-current
asset/liability of discontinued operations as Texas Genco will not benefit from
any gains, and losses will be recovered through the rate-making process.

As of December 31, 2003 and 2004, the Company held an investment in Time
Warner Inc. common stock, which was classified as a "trading" security. For
information regarding this investment, see Note 6.

(l) ENVIRONMENTAL COSTS

The Company expenses or capitalizes environmental expenditures, as
appropriate, depending on their future economic benefit. The Company expenses
amounts that relate to an existing condition caused by past operations, and that
do not have future economic benefit. The Company records undiscounted
liabilities related to these future costs when environmental assessments and/or
remediation activities are probable and the costs can be reasonably estimated.

(m) STATEMENTS OF CONSOLIDATED CASH FLOWS

For purposes of reporting cash flows, the Company considers cash
equivalents to be short-term, highly liquid investments with maturities of three
months or less from the date of purchase. In connection with the issuance of
transition bonds in October 2001, the Company was required to establish
restricted cash accounts to collateralize the bonds that were issued in this
financing transaction. These restricted cash accounts are not available for
withdrawal until the maturity of the bonds. Cash and Cash Equivalents does not
include restricted cash. For additional information regarding the securitization
financing, see Note 4(a).

(n) NEW ACCOUNTING PRONOUNCEMENTS

In January 2003, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. (FIN) 46 "Consolidation of Variable Interest Entities,
an Interpretation of Accounting Research No. 51" (FIN 46). FIN 46 requires
certain variable interest entities to be consolidated by the primary beneficiary
of the entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. On December 24, 2003, the
FASB issued a revision to FIN 46 (FIN 46-R). For special-purpose entities
(SPE's) created before February 1, 2003, the Company applied the provisions of
FIN 46 or FIN 46-R as of December 31, 2003. FIN 46-R is effective for all other
entities for financial periods ending after March 15, 2004. The Company has
subsidiary trusts that have Mandatorily Redeemable Preferred Securities
outstanding. The trusts were determined to be variable interest entities under
FIN 46-R and the Company also determined that it is not the primary beneficiary
of the trusts. As of December 31, 2003, the Company deconsolidated the trusts
and instead reports its junior subordinated debentures due to the trusts as
long-term debt. The Company also evaluated two purchase power contracts with
qualifying facilities as defined in the Public Utility Regulatory Policies Act
of 1978 related to its former Electric Generation business segment. The Company
concluded it was not required to consolidate the entities that own the
qualifying facilities.

On May 19, 2004, the FASB issued a FASB Staff Position (FSP) addressing the
appropriate accounting and disclosure requirements for companies that sponsor a
postretirement health care plan that provides

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CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

prescription drug benefits. The new guidance from the FASB was deemed necessary
as a result of the 2003 Medicare prescription law, which includes a federal
subsidy for qualifying companies. FSP 106-2, "Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003" (FSP 106-2), requires that the effects of the federal
subsidy be considered an actuarial gain and treated like similar gains and
losses and requires certain disclosures for employers that sponsor
postretirement health care plans that provide prescription drug benefits. The
FASB's related existing guidance, FSP 106-1, "Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003," was superseded upon the effective date of FSP 106-2.
The Company adopted FSP 106-2 prospectively in July 2004 with no material effect
on its results of operations, financial condition or cash flows.

In its October 13, 2004 meeting, the FASB ratified the consensus reached by
the Emerging Issues Task Force (EITF) at its September 29-30, 2004 meeting on
EITF Issue No. 04-8, "Accounting Issues Related to Certain Features of
Contingently Convertible Debt and the Effect on Diluted Earnings Per Share"
(EITF 04-8), that requires certain contingently convertible debt instruments
with a market price trigger to be treated the same as traditional convertible
debt instruments for earnings per share (EPS) purposes. The contingently
convertible debt instruments are taken into consideration in the calculation of
diluted EPS using the "if-converted" method. The Company issued contingently
convertible debt instruments in 2003. The Company's $575 million contingently
convertible notes are included in the calculation of diluted earnings per share
pursuant to EITF 04-8. The Company's $255 million contingently convertible notes
are not included in the calculation of diluted earnings per share because the
terms of this debt instrument were modified prior to December 31, 2004 to
provide for only cash settlement of the principal amount upon conversion as
required by EITF 04-8. The Company adopted EITF 04-8 effective December 31,
2004. The impact on the Company's diluted EPS from continuing operations for the
years ended December 31, 2003 and 2004 was a decrease of $0.10 per share and
$0.05 per share, respectively.

On October 22, 2004, the American Jobs Creation Act (AJCA) was signed into
law. The AJCA makes several sweeping changes to U.S. taxpayers engaged in
cross-border or manufacturing businesses, and some of the provisions of the AJCA
have retroactive effective dates. The Company presently estimates that the
reduction in federal income tax related to relief for manufacturers of domestic
goods will inure to Texas Genco, which is reported as discontinued operations as
of December 31, 2004. Accordingly, this effect would be reflected on Texas
Genco's future financial statements when it will not be a part of the Company.
On December 21, 2004, the FASB issued FSP 109-1, "Application of FASB Statement
No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified
Production Activities Provided by the American Jobs Creation Act of 2004," that
provides accounting guidance on how companies should account for the effects of
the AJCA. In this FSP, the FASB concludes that the tax relief (special tax
deduction for domestic manufacturing) from this legislation should be accounted
for as a "special deduction" instead of a tax rate reduction. The guidance in
this FSP had no material effect on the Company's financial position as of
December 31, 2004.

In December 2004, the FASB issued SFAS No. 123 (Revised 2004), "Share-Based
Payment" (SFAS No. 123). SFAS No. 123 requires that the compensation costs
relating to share-based payment transactions be recognized in financial
statements. That cost will be measured based on the fair value of the equity or
liability instruments issued at the grant date. The Company will be required to
adopt SFAS No. 123 in the third quarter of 2005 using the modified prospective
method as defined in the statement. The Company does not anticipate that the
adoption of SFAS No. 123 will have a material impact on its results of
operations, financial condition or cash flows.

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CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(o) STOCK-BASED INCENTIVE COMPENSATION

In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation"
(SFAS No. 123), and SFAS No. 148, "Accounting for Stock-Based Compensation
Transition and Disclosure -- an Amendment of SFAS No. 123," the Company applies
the guidance contained in APB Opinion No. 25 and discloses the required
pro-forma effect on net income of the fair value based method of accounting for
stock compensation. The weighted average fair values at date of grant for
CenterPoint Energy options granted during 2002, 2003 and 2004 were $1.40, $1.66
and $1.86, respectively. The fair values were estimated using the Black-Scholes
option valuation model with the following assumptions:

Pro-forma information for 2002, 2003 and 2004 is provided to take into
account the amortization of stock-based compensation to expense on a
straight-line basis over the vesting period. Had compensation costs been
determined as prescribed by SFAS No. 123, the Company's net income and earnings
per share would have been as follows:

See Note 9 for further discussion of stock-based incentive compensation.

(p) PENSION AND OTHER POSTEMPLOYMENT BENEFIT PLANS

The Company sponsors pension and other retirement plans in various forms
covering all employees who meet eligibility requirements. The Company uses
several statistical and other factors which attempt to anticipate future events
in calculating the expense and liability related to its plans. These factors
include assumptions about the discount rate, expected return on plan assets and
rate of future compensation increases as estimated by management, within certain
guidelines. In addition, the Company's actuarial consultants use subjective
factors such as withdrawal and mortality rates to estimate these factors. The
actuarial assumptions used may differ materially from actual results due to
changing market and economic conditions, higher or lower withdrawal rates or
longer or shorter life spans of participants. These differences may result in a
significant impact to the amount of pension expense recorded. For further
discussion, see Note 9.

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CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(3) DISCONTINUED OPERATIONS AND QUASI-REORGANIZATION

RRI. On September 30, 2002, CenterPoint Energy distributed to its
shareholders its 83% ownership interest in RRI by means of a tax-free spin-off
in the form of a dividend. Holders of CenterPoint Energy common stock on the
record date received 0.788603 shares of RRI common stock for each share of
CenterPoint Energy stock that they owned on the record date. The RRI
Distribution was recorded in the third quarter of 2002.

As a result of the RRI Distribution, CenterPoint Energy recorded a non-cash
loss on disposal of discontinued operations of $4.4 billion in 2002. This loss
represents the excess of the carrying value of CenterPoint Energy's net
investment in RRI over the market value of RRI's common stock at the time of the
RRI Distribution. The consolidated financial statements reflect the
reclassifications necessary to present RRI as discontinued operations for all
periods presented in accordance with SFAS No. 144.

RRI's revenues included in discontinued operations for the nine months
ended September 30, 2002 were $9.5 billion as reported in RRI's Annual Report on
Form 10-K/A, Amendment No. 1, filed with the Securities and Exchange Commission
(SEC) on May 1, 2003. These amounts have been restated to reflect RRI's adoption
of EITF Issue No. 02-3, "Issues Related to Accounting for Contracts Involved in
Energy Trading and Risk Management Activities." Income from these discontinued
operations for the nine months ended September 30, 2002 is reported net of
income tax expense of $284 million.

Latin America. In February 2003, the Company sold its interest in Argener,
a cogeneration facility in Argentina, for $23 million. The carrying value of
this investment was approximately $11 million as of December 31, 2002. The
Company recorded an after-tax gain of $7 million from the sale of Argener in the
first quarter of 2003. In April 2003, the Company sold its final remaining
investment in Argentina, a 90 percent interest in Empresa Distribuidora de
Electricidad de Santiago del Estero S.A. The Company recorded an after-tax loss
of $3 million in the second quarter of 2003 related to its Latin America
operations. The consolidated financial statements reflect the reclassifications
necessary to present these operations as discontinued operations for all periods
presented in accordance with SFAS No. 144.

Revenues related to the Company's Latin America operations included in
discontinued operations for the years ended December 31, 2002 and 2003 were $15
million and $2 million, respectively. Income from these discontinued operations
for each of the years ended December 31, 2002 and 2003 is reported net of income
tax expense of $2 million.

CenterPoint Energy Management Services, Inc. As discussed in Note 1, in
November 2003, the Company completed the sale of a component of its Other
Operations business segment, CenterPoint Energy Management Services, Inc.
(CEMS), that provides district cooling services in the Houston central business
district and related complementary energy services to district cooling customers
and others. The Company recorded an after-tax loss of $1 million from the sale
of CEMS in the fourth quarter of 2003. The Company recorded an after-tax loss in
discontinued operations of $16 million ($25 million pre-tax) during the second
quarter of 2003 to record the impairment of the long-lived asset based on the
impending sale and to record one-time employee termination benefits. The
consolidated financial statements reflect the reclassifications necessary to
present these CEMS operations as discontinued operations for all periods
presented in accordance with SFAS No. 144.

Revenues related to CEMS included in discontinued operations for the years
ended December 31, 2002 and 2003 were $9 million and $10 million, respectively.
Income from these discontinued operations for the years ended December 31, 2002
and 2003 is reported net of income tax benefit of $1 million and $2 million,
respectively.

Texas Genco. As discussed in Note 1, in July 2004, the Company announced
its agreement to sell Texas Genco to Texas Genco LLC. On December 15, 2004,
Texas Genco completed the sale of its fossil generation

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

assets (coal, lignite and gas-fired plants) to Texas Genco LLC for $2.813
billion in cash. Texas Genco's principal remaining asset is its ownership
interest in the South Texas Project Electric Generating Station, a nuclear
generating facility (South Texas Project). The final step of the transaction,
the merger of Texas Genco with a subsidiary of Texas Genco LLC in exchange for
an additional cash payment to the Company of $700 million, is expected to close
during the first half of 2005, following receipt of approval from the NRC. The
Company recorded an after-tax loss of $214 million in 2004 related to the sale
of Texas Genco. In addition, as a result of this transaction, any future
earnings of Texas Genco will be offset by an increase in the loss. The
consolidated financial statements present these operations as discontinued
operations for all periods presented in accordance with SFAS No. 144.

The following table summarizes the components of the income (loss) from
discontinued operations of Texas Genco for each of the years ended December
2002, 2003 and 2004:

(1) In 2004, Texas Genco recorded an after-tax loss of $426 million related to
the sale of its coal, lignite and gas-fired generation plants which occurred
in the first step of the transaction pursuant to which Texas Genco is being
sold. This loss was reversed by CenterPoint Energy to reflect its estimated
loss on the sale of Texas Genco.

(2) General corporate overhead previously allocated to Texas Genco from
CenterPoint Energy, which will not be eliminated by the sale of Texas Genco,
was excluded from income from discontinued operations and is reflected as
general corporate overhead of CenterPoint Energy in income from continuing
operations in accordance with SFAS No. 144.

(3) Interest expense was reclassified to discontinued operations of Texas Genco
related to the applicable amounts of CenterPoint Energy's term loan and
revolving credit facility debt that would have been assumed to be paid off
with any proceeds from the sale of Texas Genco during those respective
periods in accordance with SFAS No. 144.

Revenues related to Texas Genco included in discontinued operations for the
years ended December 31, 2002, 2003 and 2004 were $1.5 billion, $2.0 billion and
$2.1 billion, respectively. Income from these discontinued operations for the
years ended December 31, 2002, 2003 and 2004 is reported net of income tax
(expense) benefit of $63 million, $(71) million and $(166) million,
respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Summarized balance sheet information as of December 31, 2003 and 2004
related to discontinued operations of Texas Genco is as follows:

(1) Deferred taxes of $758 million recorded as of December 31, 2003 were
reversed upon the completion of the first step of the sale of Texas Genco.
Taxes payable resulting from the sale will be paid by the Company, and are
included in current liabilities as of December 31, 2004.

On December 15, 2004, Texas Genco completed the sale of its fossil
generation assets (coal, lignite and gas-fired plants) to Texas Genco LLC for
$2.813 billion in cash. Texas Genco used approximately $716 million of the cash
proceeds from the sale to repay an overnight bridge loan that Texas Genco had
entered into in order to finance the repurchase of Texas Genco's common stock
held by minority shareholders prior to the first step of the Texas Genco sale.
Texas Genco distributed the balance of the cash proceeds from the sale and cash
on hand of $2.231 billion, to the Company. Included in current assets of
discontinued operations is $390 million of restricted cash designated to buy
back the remaining shares of Texas Genco's common stock which have not yet been
tendered by Texas Genco's former minority shareholders.

Texas Genco owns a 30.8% interest in the South Texas Project, which
consists of two 1,250 MW nuclear generating units and bears a corresponding
30.8% share of capital and operating costs associated with the project. The
South Texas Project is owned as a tenancy in common among Texas Genco and three
other co-owners, with each owner retaining its undivided ownership interest in
the two generating units and the electrical output from those units. Texas Genco
is severally liable, but not jointly liable, for the expenses and

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liabilities of the South Texas Project. Texas Genco and the three other
co-owners organized the STP Nuclear Operating Company (STPNOC) to operate and
maintain the South Texas Project. STPNOC is managed by a board of directors
comprised of one director appointed by each of the four co-owners, along with
the chief executive officer of STPNOC. Texas Genco's share of direct expenses of
the South Texas Project is included in discontinued operations in the Statements
of Consolidated Operations. As of December 31, 2003 and 2004, Texas Genco's
total utility plant for the South Texas Project was $431 million and $436
million, respectively (net of $2.2 billion and $2.3 billion accumulated
depreciation, respectively, which includes an impairment loss recorded in 1999
of $745 million). As of December 31, 2003 and 2004, Texas Genco's investment in
nuclear fuel was $40 million (net of $316 million amortization) and $34 million
(net of $334 million amortization), respectively. These assets are included in
non-current assets of discontinued operations in the Consolidated Balance
Sheets.

In September 2004, a subsidiary of Texas Genco, Texas Genco, LP (Genco LP),
signed an agreement to purchase a portion of AEP Texas Central Company's (AEP)
25.2% interest in the South Texas Project for approximately $174 million. Once
the purchase is complete, Genco LP will own an additional 13.2% interest in the
South Texas Project for a total of 44%, or approximately 1,100 MW. This purchase
agreement was entered into pursuant to Genco LP's right of first refusal to
purchase this interest when AEP announced its agreement to sell this interest to
a third-party. In addition to AEP's ownership interest and Genco LP's current
30.8% ownership, the 2,500 MW nuclear plant is currently 28%-owned by City
Public Service of San Antonio (CPS) and 16%-owned by Austin Energy. CPS is
expected to purchase AEP's remaining 12% ownership interest under its right of
first refusal. The sale is subject to approval by the NRC. Texas Genco expects
to fund the purchase of its share of AEP's interest, including reimbursements of
draws under letters of credit, with existing cash balances that have been
provided to cash collateralize the letters of credit as described below and, if
necessary, cash expected to be generated through operations. If CPS were to fail
to purchase the 12% interest it has agreed to acquire, Texas Genco would
purchase AEP's entire 25.2% interest in the South Texas Project, in which case
Texas Genco would need approximately $158 million of additional cash. The
Company expects this transaction will be completed by the end of the second
quarter of 2005.

In December 2004, prior to the consummation of the sale of Texas Genco's
coal, lignite and gas-fired generation assets to Texas Genco LLC, the $250
million revolving credit facility of Genco LP was terminated and the then
outstanding letters of credit aggregating $182 million issued under the facility
in favor of AEP relating to the right of first refusal were cash collateralized
at 105% of their face amount. In February 2005, Genco LP also established a $75
million term loan facility under which borrowings may be made for working
capital purposes at LIBOR plus 50 basis points. Two drawings aggregating $75
million may be made under the facility which matures on the earlier of August
2005 or the closing of the final step of the Texas Genco sale. An initial draw
of $59 million was made in February 2005. This facility is secured by a lien on
Texas Genco's equity and partnership interests in its subsidiaries and cash
collateral accounts described above.

Quasi-Reorganization. On December 30, 2004, the Board of Directors of the
Company adopted a plan for an accounting reorganization of the Company, to be
effective as of January 1, 2005. At the same time, the Manager of CenterPoint
Houston adopted a similar plan for CenterPoint Houston. These plans were adopted
in order to eliminate the accumulated retained earnings deficit that exists at
both companies.

The plan adopted by the Company required: (1) a report to be presented to
and reviewed by the Company's Board of Directors on or before February 28, 2005
as to the completion of the valuation analysis of the accounting reorganization
and the effects of the accounting reorganization on the Company's financial
statements, (2) a determination that the accounting reorganization is in
accordance with accounting principles generally accepted in the United States,
and (3) that there be no determination by the Company's Board of Directors on or
before February 28, 2005 that the accounting reorganization is inconsistent with
the Company's regulatory obligations. The Company is continuing to work to
complete the valuation analysis and the effects on the Company's financial
statements of the accounting reorganization, and on February 23, 2005,

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the Company's Board of Directors extended until May 10, 2005 the time for making
the determination described in (3) of the preceding sentence.

An accounting reorganization, sometimes called a "quasi-reorganization,"
allows a company to extinguish a negative retained earnings balance. It involves
restating a company's assets and its liabilities to their fair values. The
negative balance in the retained earnings account is then brought to zero
through a reduction in the other capital accounts, giving the company a "fresh
start" with a zero balance in retained earnings. As of December 31, 2004, the
Company had an accumulated retained earnings deficit of approximately $1.7
billion. That deficit stemmed from the accounting effects of (1) the Company's
distribution of its ownership interest in RRI to its shareholders in September
2002, (2) the extraordinary loss recorded in connection with the Texas Utility
Commission's order related to the 2004 True-Up Proceeding (defined below) and
(3) the loss on discontinued operations that was recorded in connection with the
Company's sale of Texas Genco. In addition to eliminating the accumulated
deficit in retained earnings and restating assets and liabilities to fair value,
if a quasi-reorganization were implemented, the Company and CenterPoint Houston
would be required to implement any accounting standards that have been issued
but not yet adopted.

The Company and CenterPoint Houston are seeking to eliminate the negative
retained earnings balance because restrictions contained in the 1935 Act require
registered public utility holding companies and their subsidiaries, like the
Company and CenterPoint Houston, to obtain express authorization from the SEC to
pay dividends when current or retained earnings are insufficient to do so.
Eliminating the negative retained earnings balance will permit current earnings
not utilized to pay dividends to more quickly build up a retained earnings
balance. Under 1935 Act regulations, the Company could pay dividends out of this
balance during periods when current earnings may not be adequate to do so.

In addition, the Company has undertaken an obligation under the 1935 Act to
achieve a minimum ratio of common equity to total capitalization of thirty
percent, which, depending on the results of the restatement of assets and
liabilities under the accounting reorganization, could be affected by, and will
be taken into consideration by the Board of Directors in evaluating the effects
of, the accounting reorganization. The Company will seek such authority as may
be required under the 1935 Act in connection with the quasi-reorganization.

(4) REGULATORY MATTERS

(a) 2004 TRUE-UP PROCEEDING

In March 2004, CenterPoint Houston filed the final true-up application
required by the Texas electric restructuring law with the Public Utility
Commission of Texas (Texas Utility Commission) (2004 True-Up Proceeding).
CenterPoint Houston's requested true-up balance was $3.7 billion, excluding
interest and net of the retail clawback from RRI described below. In June, July
and September 2004, the Texas Utility Commission conducted hearings on, and held
public meetings addressing, CenterPoint Houston's true-up application. In
December 2004, the Texas Utility Commission approved a final order in
CenterPoint Houston's true-up proceeding (2004 Final Order) authorizing
CenterPoint Houston to recover $2.3 billion including interest through August
31, 2004, subject to adjustments to reflect the benefit of certain deferred
taxes and the accrual of interest and payment of excess mitigation credits after
August 31, 2004. As a result of the 2004 Final Order, the Company wrote-off net
regulatory assets of $1.5 billion and recorded a related income tax benefit of
$526 million, resulting in an after-tax charge of $977 million, which is
reflected as an extraordinary loss in the Company's Statements of Consolidated
Operations. The Company recorded an expected loss of $894 million in the third
quarter of 2004 and increased this amount by $83 million in the fourth quarter
of 2004 based on the Company's assessment of the amounts ultimately recoverable.
In January 2005, CenterPoint Houston appealed certain aspects of the final order
seeking to increase the true-up balance ultimately recovered by CenterPoint
Houston. Other parties have also appealed the order, seeking to reduce the
amount authorized for CenterPoint Houston's recovery. Although CenterPoint
Houston believes it has

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meritorious arguments and that the other parties' appeals are without merit, no
prediction can be made as to the ultimate outcome or timing of such appeals.

The Company has recorded as a regulatory asset a return of $374 million on
the true-up balance for the period from January 1, 2002 through December 31,
2004 as allowed by the Texas Utility Commission's 2004 Final Order. The Company,
under the 2004 Final Order, will continue to accrue a return until the true-up
balance is recovered by the Company, either from rate payers or through a
securitization offering as discussed below. The rate of return is based on
CenterPoint Houston's cost of capital, established in the Texas Utility
Commission's final order issued in October 2001 (2001 Final Order), which is
derived from CenterPoint Houston's cost to finance assets and an allowance for
earnings on shareholders' investment. Accordingly, in accordance with SFAS No.
92, "Regulated Enterprises -- Accounting for Phase-in Plans." the rate of return
has been bifurcated into components representing a return of costs to finance
assets and an allowance for earnings on shareholders' investment. The component
representing a return of costs to finance assets of $226 million has been
recognized in the fourth quarter of 2004 and is included in other income in the
Company's Statements of Consolidated Operations. The component representing a
return of costs to finance assets will continue to be recognized as earned going
forward. The component representing an allowance for earnings on shareholders'
investment of $148 million has been deferred and will be recognized as it is
collected through rates in the future.

In November 2004, RRI paid $177 million to the Company, representing the
"retail clawback" determined by the Texas Utility Commission in the 2004 True-Up
Proceeding. The Texas electric restructuring law requires the Texas Utility
Commission to determine the retail clawback if the formerly integrated utility's
affiliated retail electric provider retained more than 40 percent of its
residential price-to-beat customers within the utility's service area as of
January 1, 2004 (offset by new customers added outside the service territory).
That retail clawback is a credit against the stranded costs the utility is
entitled to recover and was reflected in the $2.3 billion recovery authorized.
Under the terms of a master separation agreement between RRI and the Company,
RRI agreed to pay the Company the amount of the retail clawback determined by
the Texas Utility Commission. The payment was used by the Company to reduce
outstanding indebtedness.

The Texas electric restructuring law provides for the use of special
purpose entities to issue transition bonds for the economic value of
generation-related regulatory assets and stranded costs. These transition bonds
will be amortized over a period not to exceed 15 years through non-bypassable
transition charges. In October 2001, a special purpose subsidiary of CenterPoint
Houston issued $749 million of transition bonds to securitize certain
generation-related regulatory assets. These transition bonds have a final
maturity date of September 15, 2015 and are non-recourse to the Company and its
subsidiaries other than to the special purpose issuer. Payments on the
transition bonds are made solely out of funds from non-bypassable transition
charges.

In December 2004, CenterPoint Houston filed for approval of a financing
order to issue transition bonds to securitize its true-up balance. On March 9,
2005, the Texas Utility Commission issued a financing order allowing CenterPoint
Houston to securitize approximately $1.8 billion and requiring that the benefit
of certain deferred taxes be reflected as a reduction in the competition
transition charge. The Company anticipates that a new special purpose subsidiary
of CenterPoint Houston will issue bonds in one or more series through an
underwritten offering. Depending on market conditions and the impact of possible
appeals of the financing order, among other factors, the Company anticipates
completing such an offering in 2005.

In January 2005, CenterPoint Houston filed an application for a competition
transition charge to recover its true-up balance. CenterPoint Houston will
adjust the amount sought through that charge to the extent that it is able to
securitize any of such amount. Under the Texas Utility Commission's rules, the
unrecovered true-up balance to be recovered through the competition transition
charge earns a return until fully recovered.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In the 2001 Final Order, the Texas Utility Commission established the
transmission and distribution rates that became effective in January 2002. Based
on its 2001 revision of the 1998 stranded cost estimates, the Texas Utility
Commission determined that CenterPoint Houston had over-mitigated its stranded
costs by redirecting transmission and distribution depreciation and by
accelerating depreciation of generation assets as provided under its 1998
transition plan and the Texas electric restructuring law. In the 2001 Final
Order, CenterPoint Houston was required to reverse the amount of redirected
depreciation and accelerated depreciation taken for regulatory purposes as
allowed under the 1998 transition plan and the Texas electric restructuring law.
In accordance with the 2001 Final Order, CenterPoint Houston recorded a
regulatory liability to reflect the prospective refund of the accelerated
depreciation, and in January 2002 CenterPoint Houston began paying excess
mitigation credits, which were to be paid over a seven-year period with interest
at 7 1/2% per annum. The annual payment of excess mitigation credits is
approximately $264 million. In its December 2004 final order in the 2004 True-Up
Proceeding, the Texas Utility Commission found that CenterPoint Houston did, in
fact, have stranded costs (as originally estimated in 1998). Despite this
ruling, the Texas Utility Commission denied CenterPoint Houston recovery of
approximately $180 million of the interest portion of the excess mitigation
credits already paid by CenterPoint Houston and refused to terminate future
excess mitigation credits. In January 2005, CenterPoint Houston filed a writ of
mandamus petition with the Texas Supreme Court asking that court to order the
Texas Utility Commission to terminate immediately the payment of all excess
mitigation credits and to ensure full recovery of all excess mitigation credits.
Although CenterPoint Houston believes it has meritorious arguments, a writ of
mandamus is an extraordinary remedy and no prediction can be made as to the
ultimate outcome or timing of the mandamus petition. If the Supreme Court denies
CenterPoint Houston's mandamus petition, it will continue to pursue this issue
through regular appellate mechanisms. On March 1, 2005, a non-unanimous
settlement was filed in Docket No. 30774, which involves the adjustment of RRI's
Price-to-Beat. Under the terms of that settlement, the excess mitigation credits
being paid by CenterPoint Houston would be terminated as of April 29, 2005. The
Texas Utility Commission approved the settlement on March 9, 2005.

(b) FINAL FUEL RECONCILIATION

On March 4, 2004, an Administrative Law Judge (ALJ) issued a Proposal for
Decision (PFD) relating to CenterPoint Houston's final fuel reconciliation.
CenterPoint Houston reserved $117 million, including $30 million of interest, in
the fourth quarter of 2003 reflecting the ALJ's recommendation. On April 15,
2004, the Texas Utility Commission affirmed the PFD's finding in part, reversed
in part, and remanded one issue back to the ALJ. On May 28, 2004, the Texas
Utility Commission approved a settlement of the remanded issue and issued a
final order which reduced the disallowance. As a result of the final order, the
Company reversed $23 million, including $8 million of interest, of the $117
million reserve recorded in the fourth quarter of 2003. The results of the Texas
Utility Commission's final decision are a component of the 2004 True-Up
Proceeding. The Company has appealed certain portions of the Texas Utility
Commission's final order involving a disallowance of approximately $67 million
relating to the final fuel reconciliation plus interest of $10 million. Briefs
on this issue were filed on January 5, 2005, and a hearing on this issue is
scheduled for April 22, 2005.

(c) RATE CASES

In 2004, the City of Houston, 28 other cities and the Railroad Commission
of Texas (Railroad Commission) approved a settlement that increased Houston Gas'
base rate and service charge revenues by approximately $14 million annually.

In February 2004, the Louisiana Public Service Commission (LPSC) approved a
settlement that increased Southern Gas Operations' base rate and service charge
revenues in its South Louisiana Division by approximately $2 million annually.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In July 2004, Minnesota Gas filed an application for a general rate
increase of $22 million with the Minnesota Public Utilities Commission (MPUC).
Minnesota Gas and the Minnesota Department of Commerce have agreed to a
settlement of all issues, including an annualized increase in the amount of $9
million, subject to approval by the MPUC. A final decision on this rate relief
request is expected from the MPUC in the second quarter of 2005. Interim rates
of $17 million on an annualized basis became effective on October 1, 2004,
subject to refund.

In July 2004, the LPSC approved a settlement that increased Southern Gas
Operations' base rate and service charge revenues in its North Louisiana
Division by approximately $7 million annually.

In October 2004, Southern Gas Operations filed an application for a general
rate increase of approximately $3 million with the Railroad Commission for rate
relief in the unincorporated areas of its Beaumont, East Texas and South Texas
Divisions. The Railroad Commission staff has begun its review of the request,
and a decision is anticipated in April 2005.

In November 2004, Southern Gas Operations filed an application for a
general rate increase of approximately $34 million with the Arkansas Public
Service Commission (APSC). The APSC staff has begun its review of the request,
and a decision is anticipated in the second half of 2005.

In December 2004, the Oklahoma Corporation Commission approved a settlement
that increased Southern Gas Operations' base rate and service charge revenues by
approximately $3 million annually.

(d) CITY OF TYLER, TEXAS DISPUTE

In July 2002, the City of Tyler, Texas, asserted that Southern Gas
Operations had overcharged residential and small commercial customers in that
city for gas costs under supply agreements in effect since 1992. That dispute
has been referred to the Railroad Commission by agreement of the parties for a
determination of whether Southern Gas Operations has properly charged and
collected for gas service to its residential and commercial customers in its
Tyler distribution system in accordance with lawful filed tariffs during the
period beginning November 1, 1992, and ending October 31, 2002. In December
2004, the Railroad Commission conducted a hearing on the matter and is expected
to issue a ruling in March or April of 2005. In a parallel action now in the
Court of Appeals in Austin, Southern Gas Operations is challenging the scope of
the Railroad Commission's inquiry which goes beyond the issue of whether
Southern Gas Operations had properly followed its tariffs to include a review of
Southern Gas Operations' historical gas purchases. The Company believes such a
review is not permitted by law and is beyond what the parties requested in the
joint petition that initiated the proceeding at the Railroad Commission. The
Company believes that all costs for Southern Gas Operations' Tyler distribution
system have been properly included and recovered from customers pursuant to
Southern Gas Operations' filed tariffs.

(5) DERIVATIVE INSTRUMENTS

The Company is exposed to various market risks. These risks arise from
transactions entered into in the normal course of business. The Company utilizes
derivative financial instruments such as physical forward contracts, swaps and
options (Energy Derivatives) to mitigate the impact of changes in its natural
gas businesses on its operating results and cash flows.

(a) NON-TRADING ACTIVITIES

Cash Flow Hedges. To reduce the risk from market fluctuations associated
with purchased gas costs, the Company enters into energy derivatives in order to
hedge certain expected purchases and sales of natural gas (non-trading energy
derivatives). The Company applies hedge accounting for its non-trading energy
derivatives utilized in non-trading activities only if there is a high
correlation between price movements in the derivative and the item designated as
being hedged. The Company analyzes its physical transaction portfolio

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

to determine its net exposure by delivery location and delivery period. Because
the Company's physical transactions with similar delivery locations and periods
are highly correlated and share similar risk exposures, the Company facilitates
hedging for customers by aggregating physical transactions and subsequently
entering into non-trading energy derivatives to mitigate exposures created by
the physical positions.

During 2004, hedge ineffectiveness of $0.4 million was recognized in
earnings from derivatives that are designated and qualify as Cash Flow Hedges,
and in 2003 and 2002, no hedge ineffectiveness was recognized. No component of
the derivative instruments' gain or loss was excluded from the assessment of
effectiveness. If it becomes probable that an anticipated transaction will not
occur, the Company realizes in net income the deferred gains and losses
recognized in accumulated other comprehensive loss. Once the anticipated
transaction occurs, the accumulated deferred gain or loss recognized in
accumulated other comprehensive loss is reclassified and included in the
Company's Statements of Consolidated Operations under the caption "Natural Gas."
Cash flows resulting from these transactions in non-trading energy derivatives
are included in the Statements of Consolidated Cash Flows in the same category
as the item being hedged. As of December 31, 2004, the Company expects $5
million in accumulated other comprehensive income to be reclassified into net
income during the next twelve months.

The maximum length of time the Company is hedging its exposure to the
variability in future cash flows for forecasted transactions on existing
financial instruments is primarily two years with a limited amount of exposure
up to five years. The Company's policy is not to exceed five years in hedging
its exposure.

Other Derivative Financial Instruments. The Company also has natural gas
contracts which are derivatives which are not hedged. Load following services
that the Company offers its natural gas customers create an inherent tendency to
be either long or short natural gas supplies relative to customer purchase
commitments. The Company measures and values all of its volumetric imbalances on
a real time basis to minimize its exposure to commodity price and volume risk.
The aggregate Value at Risk (VaR) associated with these operations is calculated
daily and averaged $0.2 million with a high of $1 million during 2004. The
Company does not engage in proprietary or speculative commodity trading.
Unhedged positions are accounted for by adjusting the carrying amount of the
contracts to market and recognizing any gain or loss in operating income, net.
During 2004, the Company recognized net gains related to unhedged positions
amounting to $7 million and as of December 31, 2004 had recorded short-term risk
management assets and liabilities of $4 million and $5 million, respectively,
included in other current assets and other current liabilities, respectively.

Interest Rate Swaps. As of December 31, 2003, the Company had an
outstanding interest rate swap with a notional amount of $250 million to fix the
interest rate applicable to floating-rate short-term debt. This swap, which
expired in January 2004, did not qualify as a cash flow hedge under SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No.
133), and was marked to market in the Company's Consolidated Balance Sheets with
changes in market value reflected in interest expense in the Statements of
Consolidated Operations.

During 2002, the Company settled forward-starting interest rate swaps
having an aggregate notional amount of $1.5 billion at a cost of $156 million,
which was recorded in other comprehensive income and is being amortized into
interest expense over the life of the designated fixed-rate debt. Amortization
of amounts deferred in accumulated other comprehensive income for 2003 and 2004
was $12 million and $25 million, respectively. As of December 31, 2004, the
Company expects $31 million in accumulated other comprehensive income to be
reclassified into net income during the next twelve months.

Embedded Derivative. The Company's $575 million of convertible senior
notes, issued May 19, 2003, and $255 million of convertible senior notes, issued
December 17, 2003 (see Note 8), contain contingent interest provisions. The
contingent interest component is an embedded derivative as defined by SFAS No.
133, and accordingly, must be split from the host instrument and recorded at
fair value on the

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balance sheet. The value of the contingent interest components was not material
at issuance or at December 31, 2004.

(b) CREDIT RISKS

In addition to the risk associated with price movements, credit risk is
also inherent in the Company's non-trading derivative activities. Credit risk
relates to the risk of loss resulting from non-performance of contractual
obligations by a counterparty. The following table shows the composition of the
non-trading derivative assets of the Company as of December 31, 2003 and 2004
(in millions):

(1) "Investment grade" is primarily determined using publicly available credit
ratings along with the consideration of credit support (such as parent
company guarantees) and collateral, which encompass cash and standby letters
of credit.

(2) For unrated counterparties, the Company performs financial statement
analysis, considering contractual rights and restrictions and collateral, to
create a synthetic credit rating.

(3) The $17 million non-trading derivative asset includes a $6 million asset due
to trades with Reliant Energy Services, Inc. (Reliant Energy Services), an
affiliate until the date of the RRI Distribution. As of December 31, 2004,
Reliant Energy Services did not have an investment grade rating.

(c) GENERAL POLICY

The Company has established a Risk Oversight Committee composed of
corporate and business segment officers that oversees all commodity price and
credit risk activities, including the Company's trading, marketing, risk
management services and hedging activities. The committee's duties are to
establish the Company's commodity risk policies, allocate risk capital within
limits established by the Company's board of directors, approve trading of new
products and commodities, monitor risk positions and ensure compliance with the
Company's risk management policies and procedures and trading limits established
by the Company's board of directors.

The Company's policies prohibit the use of leveraged financial instruments.
A leveraged financial instrument, for this purpose, is a transaction involving a
derivative whose financial impact will be based on an amount other than the
notional amount or volume of the instrument.

(6) INDEXED DEBT SECURITIES (ZENS) AND TIME WARNER SECURITIES

(a) ORIGINAL INVESTMENT IN TIME WARNER SECURITIES

In 1995, the Company sold a cable television subsidiary to Time Warner Inc.
(TW) and received TW convertible preferred stock (TW Preferred) as partial
consideration. On July 6, 1999, the Company converted its 11 million shares of
TW Preferred into 45.8 million shares of Time Warner common stock (TW Common).
The Company currently owns 21.6 million shares of TW Common. Unrealized gains
and losses resulting from changes in the market value of the TW Common are
recorded in the Company's Statements of Consolidated Operations.

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(b) ZENS

In September 1999, the Company issued its 2.0% Zero-Premium Exchangeable
Subordinated Notes due 2029 (ZENS) having an original principal amount of $1.0
billion. ZENS are exchangeable for cash equal to the market value of a specified
number of shares of TW common. The Company pays interest on the ZENS at an
annual rate of 2% plus the amount of any quarterly cash dividends paid in
respect of the shares of TW Common attributable to the ZENS. The principal
amount of ZENS is subject to being increased to the extent that the annual yield
from interest and cash dividends on the reference shares of TW Common is less
than 2.309%. At December 31, 2004, ZENS having an original principal amount of
$840 million and a contingent principal amount of $851 million were outstanding
and were exchangeable, at the option of the holders, for cash equal to 95% of
the market value of 21.6 million shares of TW Common deemed to be attributable
to the ZENS. At December 31, 2004, the market value of such shares was
approximately $421 million, which would provide an exchange amount of $476 for
each $1,000 original principal amount of ZENS. At maturity, the holders of the
ZENS will receive in cash the higher of the original principal amount of the
ZENS (subject to adjustment as discussed above) or an amount based on the
then-current market value of TW Common, or other securities distributed with
respect to TW Common.

In 2002, holders of approximately 16% of the 17.2 million ZENS originally
issued exercised their right to exchange their ZENS for cash, resulting in
aggregate cash payments by CenterPoint Energy of approximately $45 million.
Exchanges of ZENS subsequent to 2002 aggregate less than one percent of ZENS
originally issued.

A subsidiary of the Company owns shares of TW Common and elected to
liquidate a portion of such holdings to facilitate the Company's making the cash
payments for the ZENS exchanged in 2002 through 2004. In connection with the
exchanges, the Company received net proceeds of approximately $43 million from
the liquidation of approximately 4.1 million shares of TW Common at an average
price of $10.56 per share. The Company now holds 21.6 million shares of TW
Common which are classified as trading securities under SFAS No. 115 and are
expected to be held to facilitate the Company's ability to meet its obligation
under the ZENS.

Upon adoption of SFAS No. 133 effective January 1, 2001, the ZENS
obligation was bifurcated into a debt component and a derivative component (the
holder's option to receive the appreciated value of TW Common at maturity). The
derivative component was valued at fair value and determined the initial
carrying value assigned to the debt component ($121 million) as the difference
between the original principal amount of the ZENS ($1 billion) and the fair
value of the derivative component at issuance ($879 million). Effective January
1, 2001 the debt component was recorded at its accreted amount of $122 million
and the derivative component was recorded at its fair value of $788 million, as
a current liability. Subsequently, the debt component accretes through interest
charges at 17.5% annually up to the minimum amount payable upon maturity of the
ZENS in 2029 (approximately $915 million) which reflects exchanges and
adjustments to maintain a 2.309% annual yield, as discussed above. Changes in
the fair value of the derivative component are recorded in the Company's
Statements of Consolidated Operations. During 2002, 2003 and 2004, the Company
recorded a loss of $500 million, a gain of $106 million and a gain of $31
million, respectively, on the Company's investment in TW Common. During 2002,
2003 and 2004, the Company recorded a gain of $480 million, a loss of $96
million and a loss of $20 million, respectively, associated with the fair value
of the derivative component of the ZENS obligation. Changes in the fair value of
the TW Common held by the Company are expected to substantially offset changes
in the fair value of the derivative component of the ZENS.

The Company's sale of its interest in Texas Genco described in Notes 1 and
3 resulted in an after-tax loss of approximately $214 million in 2004. In
addition, the Company recorded an after-tax extraordinary loss of $977 million
in 2004 related to the 2004 True-Up Proceeding. Portions of these losses
recorded in periods prior to the fourth quarter of 2004 reduced the Company's
earnings below the level required for the Company to continue paying its current
quarterly dividends out of current earnings as required under the Company's SEC
financing order. However, in May 2004, the Company received an order from the
SEC under the 1935 Act authorizing it to continue to pay its current quarterly
dividend in the second and third quarters of 2004 out of capital or unearned
surplus in the event the Company had such losses. The Company declared a
dividend in the fourth quarter out of current earnings. If the Company's
earnings for subsequent quarters are insufficient to pay dividends from current
earnings, additional authority would be required from the SEC for payment of the
quarterly dividend from capital or unearned surplus, but there can be no
assurance that the SEC would authorize such payments.

(b) SHAREHOLDER RIGHTS PLAN

The Company has a Shareholder Rights Plan that states that each share of
its common stock includes one associated preference stock purchase right (Right)
which entitles the registered holder to purchase from the Company a unit
consisting of one-thousandth of a share of Series A Preference Stock. The
Rights, which expire on December 11, 2011, are exercisable upon some events
involving the acquisition of 20% or more of

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the Company's outstanding common stock. Upon the occurrence of such an event,
each Right entitles the holder to receive common stock with a current market
price equal to two times the exercise price of the Right. At anytime prior to
becoming exercisable, the Company may repurchase the Rights at a price of $0.005
per Right. There are 700,000 shares of Series A Preference Stock reserved for
issuance upon exercise of the Rights.

(1) Includes amounts due or exchangeable within one year of the date noted.

(2) Upon adoption of SFAS No. 133 effective January 1, 2001, the Company's ZENS
obligation was bifurcated into a debt component and an embedded derivative
component. For additional information regarding ZENS, see Note 6(b). As ZENS
are exchangeable for cash at any time at the option of the holders, these
notes are classified as a current portion of long-term debt.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(3) These series of debt are secured by first mortgage bonds of CenterPoint
Houston.

(4) $527 million of these series of debt is secured by general mortgage bonds of
CenterPoint Houston.

(5) Classified as long-term debt because of the termination dates of the
facilities under which the funds were borrowed.

(6) The junior subordinated debentures were issued to subsidiary trusts in
connection with the issuance by those trusts of preferred securities. The
trust preferred securities were deconsolidated effective December 31, 2003
pursuant to the adoption of FIN 46. This resulted in the junior subordinated
debentures held by the trusts being reported as long-term debt. For further
discussion, see Note 2(n).

(7) London inter-bank offered rate (LIBOR) has a minimum rate of 3% under the
terms of this debt. This term loan is secured by general mortgage bonds of
CenterPoint Houston.

(8) These series of debt are secured by general mortgage bonds of CenterPoint
Houston.

(9) Debt acquired in business acquisitions is adjusted to fair market value as
of the acquisition date. Included in long-term debt is additional
unamortized premium related to fair value adjustments of long-term debt of
$6 million and $5 million at December 31, 2003 and 2004, respectively, which
is being amortized over the respective remaining term of the related
long-term debt.

(a) SHORT-TERM BORROWINGS

Credit Facilities. As of December 31, 2003, CERC Corp. had a revolving
credit facility that provided for an aggregate of $200 million in committed
credit. As of December 31, 2003, $63 million was borrowed under the CERC Corp.
revolving credit. This facility terminated in March 2004. The weighted average
interest rate on short-term borrowings at December 31, 2003 was 5.0%, excluding
facility fees and other fees paid in connection with the arrangement of the bank
facilities.

(b) LONG-TERM DEBT

As of December 31, 2004, CERC Corp. had a revolving credit facility that
provided for an aggregate of $250 million in committed credit. The revolving
credit facility terminates on March 23, 2007. Fully-drawn rates for borrowings
under this facility, including the facility fee, are LIBOR plus 150 basis points
based on current credit ratings and the applicable pricing grid. As of December
31, 2004, such credit facility was not utilized.

In February 2004, $56 million aggregate principal amount of collateralized
5.6% pollution control bonds due 2027 and $44 million aggregate principal amount
of 4.25% collateralized insurance-backed pollution control bonds due 2017 were
issued on behalf of CenterPoint Houston. The pollution control bonds are
collateralized by general mortgage bonds of CenterPoint Houston with principal
amounts, interest rates and maturities that match the pollution control bonds.
The proceeds were used to extinguish two series of 6.7% collateralized pollution
control bonds with an aggregate principal amount of $100 million issued on
behalf of CenterPoint Energy. CenterPoint Houston's 6.7% first mortgage bonds
which collateralized CenterPoint Energy's payment obligations under the refunded
pollution control bonds were retired in connection with the extinguishment of
the refunded pollution control bonds. CenterPoint Houston's 6.7% notes payable
to CenterPoint Energy were also cancelled upon the extinguishment of the
refunded pollution control bonds.

In March 2004, $45 million aggregate principal amount of 3.625%
collateralized insurance-backed pollution control bonds due 2012 and $84 million
aggregate principal amount of 4.25% collateralized insurance-backed pollution
control bonds due 2017 were issued on behalf of CenterPoint Houston. The
pollution control bonds are collateralized by general mortgage bonds of
CenterPoint Houston with principal amounts, interest rates and maturities that
match the pollution control bonds. The proceeds were used to extinguish two
series of 6.375% collateralized pollution control bonds with an aggregate
principal amount of $45 million and one series of 5.6% collateralized pollution
control bonds with an aggregate principal amount of

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$84 million issued on behalf of CenterPoint Energy. CenterPoint Houston's 6.375%
and 5.6% first mortgage bonds which collateralized CenterPoint Energy's payment
obligations under the refunded pollution control bonds were retired in
connection with the extinguishment of the refunded pollution control bonds.
CenterPoint Houston's 6.375% and 5.6% notes payable to CenterPoint Energy were
also cancelled upon the extinguishment of the refunded pollution control bonds.

On December 15, 2004, the Company permanently reduced its three-year credit
facility to $750 million from $2.34 billion. The credit facility was composed of
a $1.425 billion revolving credit facility (LIBOR plus 300 basis points), which
has been permanently reduced to $750 million, and a $915 million term loan
(LIBOR plus 350 basis points), which was repaid and retired on December 15,
2004. As a result of the term loan repayment and the permanent reduction of the
revolving credit facility, the Company expensed $15 million of unamortized loan
costs in the fourth quarter of 2004 that were associated with these facilities.

In March 2005, the Company replaced its $750 million revolving credit
facility with a $1 billion five-year revolving credit facility. Borrowings may
be made under the facility at LIBOR plus 100 basis points based on current
credit ratings. An additional utilization fee of 12.5 basis points applies to
borrowings any time more than 50% of the facility is utilized. Changes in credit
ratings would lower or raise the increment to LIBOR depending on whether ratings
improved or were lowered.

In March 2005, CenterPoint Houston established a $200 million five-year
revolving credit facility. Borrowings may be made under the facility at LIBOR
plus 75 basis points based on CenterPoint Houston's current credit rating. An
additional utilization fee of 12.5 basis points applies to borrowings any time
more than 50% of the facility is utilized. Changes in credit ratings would lower
or raise the increment to LIBOR depending on whether ratings improved or were
lowered.

CenterPoint Houston also established a $1.31 billion credit facility in
March 2005. This facility is available to be utilized only to refinance
CenterPoint Houston's $1.31 billion term loan maturing in November 2005 in the
event that proceeds from the issuance of transition bonds are not sufficient to
repay such term loan. Drawings may be made under this credit facility until
November 2005, at which time any outstanding borrowings are converted to term
loans maturing in November 2007. Net proceeds from the issuance of transition
bonds and certain new net indebtedness for borrowed money issued by CenterPoint
Houston in excess of $200 million must be used to repay borrowings under the new
facility. Based on CenterPoint Houston's current credit ratings, borrowings
under the facility can be made at LIBOR plus 75 basis points. Changes in credit
ratings would lower or raise the increment to LIBOR depending on whether ratings
improved or were lowered. Any drawings under this facility must be secured by
CenterPoint Houston's general mortgage bonds in the same principal amount and
bearing the same interest rate as such drawings.

Convertible Debt. On May 19, 2003, the Company issued $575 million
aggregate principal amount of convertible senior notes due May 15, 2023 with an
interest rate of 3.75%. Holders may convert each of their notes into shares of
CenterPoint Energy common stock, initially at a conversion rate of 86.3558
shares of common stock per $1,000 principal amount of notes at any time prior to
maturity, under the following circumstances: (1) if the last reported sale price
of CenterPoint Energy common stock for at least 20 trading days during the
period of 30 consecutive trading days ending on the last trading day of the
previous calendar quarter is greater than or equal to 120% or, following May 15,
2008, 110% of the conversion price per share of CenterPoint Energy common stock
on such last trading day, (2) if the notes have been called for redemption, (3)
during any period in which the credit ratings assigned to the notes by both
Moody's Investors Service, Inc. (Moody's) and Standard & Poor's Ratings Services
(S&P), a division of The McGraw-Hill Companies, are lower than Ba2 and BB,
respectively, or the notes are no longer rated by at least one of these ratings
services or their successors, or (4) upon the occurrence of specified corporate
transactions, including the distribution to all holders of CenterPoint Energy
common stock of certain rights entitling them to purchase shares of CenterPoint
Energy common stock at less than the last reported sale price of a share of
CenterPoint Energy common stock on the trading day prior to the declaration date
of the distribution or the distribution to all

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

holders of CenterPoint Energy common stock of the Company's assets, debt
securities or certain rights to purchase the Company's securities, which
distribution has a per share value exceeding 15% of the last reported sale price
of a share of CenterPoint Energy common stock on the trading day immediately
preceding the declaration date for such distribution. The convertible senior
notes also have a contingent interest feature requiring contingent interest to
be paid to holders of notes commencing on or after May 15, 2008, in the event
that the average trading price of a note for the applicable five trading day
period equals or exceeds 120% of the principal amount of the note as of the day
immediately preceding the first day of the applicable six-month interest period.
For any six-month period, contingent interest will be equal to 0.25% of the
average trading price of the note for the applicable five-trading-day period.

In March 2005, the Company filed a registration statement relating to an
offer to exchange its 3.75% convertible senior notes due 2023 for a new series
of 3.75% convertible senior notes due 2023. This registration statement has not
yet been declared effective by the SEC. The Company expects to conduct the
exchange offer in response to the guidance set forth in EITF 04-8. Under that
guidance, because settlement of the principal portion of new notes will be made
in cash rather than stock, exchanging new notes for old notes will allow the
Company to exclude the portion of the conversion value of the new notes
attributable to their principal amount from its computation of diluted earnings
per share from continuing operations. See Note 2(n) for further discussion of
the Company's adoption of EITF 04-8 and the impact on diluted earnings per share
related to these securities.

On December 17, 2003, the Company issued $255 million aggregate principal
amount of convertible senior notes due January 15, 2024 with an interest rate of
2.875%. Holders may convert each of their notes into shares of CenterPoint
Energy common stock, initially at a conversion rate of 78.064 shares of common
stock per $1,000 principal amount of notes at any time prior to maturity, under
the following circumstances: (1) if the last reported sale price of CenterPoint
Energy common stock for at least 20 trading days during the period of 30
consecutive trading days ending on the last trading day of the previous calendar
quarter is greater than or equal to 120% of the conversion price per share of
CenterPoint Energy common stock on such last trading day, (2) if the notes have
been called for redemption, (3) during any period in which the credit ratings
assigned to the notes by both Moody's and S&P are lower than Ba2 and BB,
respectively, or the notes are no longer rated by at least one of these ratings
services or their successors, or (4) upon the occurrence of specified corporate
transactions, including the distribution to all holders of CenterPoint Energy
common stock of certain rights entitling them to purchase shares of CenterPoint
Energy common stock at less than the last reported sale price of a share of
CenterPoint Energy common stock on the trading day prior to the declaration date
of the distribution or the distribution to all holders of CenterPoint Energy
common stock of the Company's assets, debt securities or certain rights to
purchase the Company's securities, which distribution has a per share value
exceeding 15% of the last reported sale price of a share of CenterPoint Energy
common stock on the trading day immediately preceding the declaration date for
such distribution. Under the original terms of these convertible senior notes,
CenterPoint Energy could elect to satisfy part or all of its conversion
obligation by delivering cash in lieu of shares of CenterPoint Energy. On
December 13, 2004, the Company entered into a supplemental indenture with
respect to these convertible senior notes in order to eliminate its right to
settle the conversion of the notes solely in shares of its common stock. The
convertible senior notes also have a contingent interest feature requiring
contingent interest to be paid to holders of notes commencing on or after
January 15, 2007, in the event that the average trading price of a note for the
applicable five-trading-day period equals or exceeds 120% of the principal
amount of the note as of the day immediately preceding the first day of the
applicable six-month interest period. For any six-month period, contingent
interest will be equal to 0.25% of the average trading price of the note for the
applicable five-trading-day period.

Proceeds from the issuance of the convertible senior notes were used to
redeem, in January 2004, $250 million liquidation amount of the 8.125% trust
preferred securities issued by HL&P Capital Trust I. Pending such use, the net
proceeds were used to repay a portion of the outstanding borrowings under the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company's revolving credit facility. See Note 2(n) for further discussion of the
Company's adoption of EITF 04-8 and the impact on diluted earnings per share
related to these securities.

Junior Subordinated Debentures (Trust Preferred Securities). In February
1997, two Delaware statutory business trusts created by CenterPoint Energy (HL&P
Capital Trust I and HL&P Capital Trust II) issued to the public (a) $250 million
aggregate amount of preferred securities and (b) $100 million aggregate amount
of capital securities, respectively. In February 1999, a Delaware statutory
business trust created by CenterPoint Energy (REI Trust I) issued $375 million
aggregate amount of preferred securities to the public. Each of the trusts used
the proceeds of the offerings to purchase junior subordinated debentures issued
by CenterPoint Energy having interest rates and maturity dates that correspond
to the distribution rates and the mandatory redemption dates for each series of
preferred securities or capital securities. As discussed in Note 2(n), upon the
Company's adoption of FIN 46, the amount of outstanding junior subordinated
debentures discussed above was included in long-term debt as of December 31,
2003 and 2004.

The preferred securities issued by HL&P Capital Trust I having an aggregate
liquidation amount of $250 million were redeemed at 100% of their aggregate
liquidation amount in January 2004. The preferred securities issued by REI Trust
I having an aggregate liquidation amount of $375 million were redeemed at 100%
of their aggregate liquidation amount in December 2004.

The junior subordinated debentures are the trusts' sole assets and their
entire operations. CenterPoint Energy considers its obligations under the
Amended and Restated Declaration of Trust, Indenture, Guaranty Agreement and,
where applicable, Agreement as to Expenses and Liabilities, relating to each
series of preferred securities or capital securities, taken together, to
constitute a full and unconditional guarantee by CenterPoint Energy of each
trust's obligations related to the respective series of preferred securities or
capital securities.

The preferred securities and capital securities are mandatorily redeemable
upon the repayment of the related series of junior subordinated debentures at
their stated maturity or earlier redemption. Subject to some limitations,
CenterPoint Energy has the option of deferring payments of interest on the
junior subordinated debentures. During any deferral or event of default,
CenterPoint Energy may not pay dividends on its capital stock. As of December
31, 2004, no interest payments on the junior subordinated debentures had been
deferred.

The outstanding aggregate liquidation amount, distribution rate and
mandatory redemption date of each series of the preferred securities or capital
securities of the trusts described above and the identity and similar terms of
each related series of junior subordinated debentures are as follows:

In June 1996, a Delaware statutory business trust created by CERC Corp.
(CERC Trust) issued $173 million aggregate amount of convertible preferred
securities to the public. CERC Trust used the proceeds of the offering to
purchase convertible junior subordinated debentures issued by CERC Corp. having

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

an interest rate and maturity date that correspond to the distribution rate and
mandatory redemption date of the convertible preferred securities. The
convertible junior subordinated debentures represent CERC Trust's sole asset and
its entire operations. CERC Corp. considers its obligation under the Amended and
Restated Declaration of Trust, Indenture and Guaranty Agreement relating to the
convertible preferred securities, taken together, to constitute a full and
unconditional guarantee by CERC Corp. of CERC Trust's obligations with respect
to the convertible preferred securities. As discussed in Note 2(n), upon the
Company's adoption of FIN 46, the amount of outstanding junior subordinated
debentures discussed above was included in long-term debt as of December 31,
2003 and 2004.

The convertible preferred securities are mandatorily redeemable upon the
repayment of the convertible junior subordinated debentures at their stated
maturity or earlier redemption. Effective January 7, 2003, the convertible
preferred securities are convertible at the option of the holder into $33.62 of
cash and 2.34 shares of CenterPoint Energy common stock for each $50 of
liquidation value. As of December 31, 2003 and 2004, the liquidation amount of
convertible preferred securities outstanding was $0.4 and $0.3 million,
respectively. The securities, and their underlying convertible junior
subordinated debentures, bear interest at 6.25% and mature in June 2026. Subject
to some limitations, CERC Corp. has the option of deferring payments of interest
on the convertible junior subordinated debentures. During any deferral or event
of default, CERC Corp. may not pay dividends on its common stock to CenterPoint
Energy. As of December 31, 2004, no interest payments on the convertible junior
subordinated debentures had been deferred.

Maturities. The Company's maturities of long-term debt, capital leases and
sinking fund requirements, excluding the ZENS obligation, are $1.7 billion in
2005, $215 million in 2006, $66 million in 2007, $572 million in 2008 and $80
million in 2009. The 2005 amount is net of the portion of a sinking fund payment
that will be satisfied with debt that had been acquired and retired as of
December 31, 2004.

Liens. As of December 31, 2004, CenterPoint Houston's assets were subject
to liens securing approximately $253 million of first mortgage bonds. Sinking or
improvement fund and replacement fund requirements on the first mortgage bonds
may be satisfied by certification of property additions. Sinking fund and
replacement fund requirements for 2002, 2003 and 2004 have been satisfied by
certification of property additions. The replacement fund requirement to be
satisfied in 2005 is approximately $147 million, and the sinking fund
requirement to be satisfied in 2005 is approximately $3 million. The Company
expects CenterPoint Houston to meet these 2005 obligations by certification of
property additions. At December 31, 2004, CenterPoint Houston's assets were also
subject to liens securing approximately $3.3 billion of general mortgage bonds
which are junior to the liens of the first mortgage bonds.

(c) RECEIVABLES FACILITY

On January 21, 2004, CERC replaced its $100 million receivables facility
with a $250 million receivables facility. As of December 31, 2004, CERC had $181
million outstanding under its receivables facility. In January 2005, the
facility was extended to January 2006 and temporarily increased, for the period
from January 2005 to June 2005, to $375 million to provide additional liquidity
to CERC during the peak heating season of 2005, in view of recent levels of, and
volatility in, gas prices.

The Company has long-term incentive compensation plans (LICPs) that provide
for the issuance of stock-based incentives, including performance-based shares,
performance-based units, restricted shares and stock options to directors,
officers and key employees. A maximum of approximately 37 million shares of
CenterPoint Energy common stock may be issued under these plans.

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Performance-based shares, performance-based units and restricted shares are
granted to employees without cost to the participants. The performance shares
and units vest three years after the grant date based upon the performance of
the Company over a three-year cycle, except as discussed below. The restricted
shares vest at various times ranging from one-year to the end of a three-year
period. Upon vesting, the shares are issued to the plan participants.

During 2002, 2003 and 2004, the Company recorded compensation expense of $2
million, $9 million and $8 million, respectively, related to performance-based
shares, performance-based units and restricted share grants. Included in these
amounts is a compensation benefit of $1 million recorded in 2002 related to
RRI's participants. Amounts for RRI's and Texas Genco's participants are
reflected in discontinued operations in the Statements of Consolidated
Operations.

The following table summarizes the Company's performance-based units,
performance-based shares and restricted share grant activity for the years 2002
through 2004:

The maximum value associated with the performance-based units granted in
2004 was $150 per unit.

Effective with the RRI Distribution which occurred on September 30, 2002,
the Company's compensation committee authorized the conversion of outstanding
CenterPoint Energy performance-based shares for the performance cycle ending
December 31, 2002 to a number of restricted shares of CenterPoint Energy's
common stock equal to the number of performance-based shares that would have
vested if the performance objectives for the performance cycle were achieved at
the maximum level for substantially all shares. These restricted shares vested
if the participant holding the shares remained employed with the Company or with
RRI and its subsidiaries through December 31, 2002. On the date of the RRI
Distribution, holders of these restricted shares received shares of RRI common
stock in the same manner as other holders of CenterPoint

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Energy common stock, but these shares of common stock were subject to the same
vesting schedule, as well as to the terms and conditions of the plan under which
the original performance shares were granted. Thus, following the RRI
Distribution, employees who held performance-based shares under the LICP for the
performance cycle ending December 31, 2002 held restricted shares of CenterPoint
Energy common stock and restricted shares of RRI common stock, which vested
following continuous employment through December 31, 2002.

Effective with the RRI Distribution, the Company converted all outstanding
CenterPoint Energy stock options granted prior to the initial public offering of
RRI common stock in May 2001 (RRI Offering) to a combination of adjusted
CenterPoint Energy stock options and RRI stock options. For the converted stock
options, the sum of the intrinsic value of the CenterPoint Energy stock options
immediately prior to the record date of the RRI Distribution equaled the sum of
the intrinsic values of the adjusted CenterPoint Energy stock options and the
RRI stock options granted immediately after the record date of the RRI
Distribution. As such, RRI employees who do not work for the Company hold stock
options of the Company. Both the number and the exercise price of all
outstanding CenterPoint Energy stock options that were granted on or after the
RRI Offering and prior to the RRI Distribution were adjusted to maintain the
total intrinsic value of the grants.

During January 2003, due to the Texas Genco Distribution, the Company
granted additional CenterPoint Energy shares to participants with
performance-based and restricted shares that had not yet vested as of the record
date of December 20, 2002. These additional shares are subject to the same
vesting schedule and the terms and conditions of the plan under which the
original shares were granted. Also in connection with this distribution, both
the number and the exercise price of all outstanding CenterPoint Energy stock
options were adjusted to maintain the total intrinsic value of the stock option
grants.

Under the Company's plans, stock options generally become exercisable in
one-third increments on each of the first through third anniversaries of the
grant date. The exercise price is the average of the high and low sales price of
the common stock on the New York Stock Exchange on the grant date. The Company
applies APB Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
Opinion No. 25), and related interpretations in accounting for its stock option
plans. Accordingly, no compensation expense has been recognized for these fixed
stock options.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes stock option activity related to the Company
for the years 2002 through 2004:

Exercise prices for CenterPoint Energy stock options outstanding held by
Company employees ranged from $4.78 to $32.26. The following tables provide
information with respect to outstanding CenterPoint Energy stock options held by
the Company's employees on December 31, 2004:

See Note 2(o) for disclosure of the pro-forma effect on net income of the
fair value based method of accounting for stock compensation.

(b) PENSION AND POSTRETIREMENT BENEFITS

The Company maintains a non-contributory qualified defined benefit plan
covering substantially all employees, with benefits determined using a cash
balance formula. Under the cash balance formula, participants accumulate a
retirement benefit based upon 4% of eligible earnings and accrued interest.
Prior to 1999, the pension plan accrued benefits based on years of service,
final average pay and covered compensation. As a result, certain employees
participating in the plan as of December 31, 1998 are eligible to receive the
greater of the accrued benefit calculated under the prior plan through 2008 or
the cash balance formula. Participants are 100% vested in their benefit after
completing five years of service.

The Company provides certain healthcare and life insurance benefits for
retired employees on a contributory and non-contributory basis. Employees become
eligible for these benefits if they have met certain age and service
requirements at retirement, as defined in the plans. Under plan amendments,
effective in early 1999, healthcare benefits for future retirees were changed to
limit employer contributions for medical coverage.

Such benefit costs are accrued over the active service period of employees.
The net unrecognized transition obligation, resulting from the implementation of
accrual accounting, is being amortized over approximately 20 years.

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The Company's net periodic cost includes the following components relating
to pension and postretirement benefits:

In determining net periodic benefits cost, the Company uses fair value, as
of the beginning of the year, as its basis for determining expected return on
plan assets.

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The following table displays the change in the benefit obligation, the fair
value of plan assets and the amounts included in the Company's Consolidated
Balance Sheets as of December 31, 2003 and 2004 for the Company's pension and
postretirement benefit plans:

Assumed healthcare cost trend rates have a significant effect on the
reported amounts for the Company's postretirement benefit plans. A 1% change in
the assumed healthcare cost trend rate would have the following effects:

In managing the investments associated with the benefit plans, the
Company's objective is to preserve and enhance the value of plan assets while
maintaining an acceptable level of volatility. These objectives are expected to
be achieved through an investment strategy that manages liquidity requirements
while maintaining a long-term horizon in making investment decisions and
efficient and effective management of plan assets.

As part of the investment strategy discussed above, the Company has adopted
and maintains the following weighted average allocation targets for its benefit
plans:

The expected rate of return assumption was developed by reviewing the
targeted asset allocations and historical index performance of the applicable
asset classes over a 15-year period, adjusted for investment fees and
diversification effects.

Equity securities for the pension plan include CenterPoint Energy common
stock in the amounts of $44 million (3.7% of total pension plan assets) as of
December 31, 2003. The pension plan did not include any holdings of CenterPoint
Energy common stock as of December 31, 2004.

Although funding for the Company's pension and postretirement plans was not
required during 2004, the Company contributed $56 million to its pension plan in
September 2004 and $420 million in December 2004, which effectively brought the
Company's pension plan assets and accumulated benefit obligation into balance
and increased shareholders' equity by $350 million as a result of the
elimination of the related minimum benefit liability. Additionally, the Company
contributed $27 million to its postretirement benefits plan in 2004.

Contributions to the pension plan are not required in 2005; however, the
Company expects to make a contribution. The Company expects to contribute
approximately $29 million to its postretirement benefits plan in 2005.

The following benefit payments are expected to be paid by the pension and
postretirement benefit plans:

In connection with the Company's sale of its 81% interest in Texas Genco as
discussed in Note 3, a separate pension plan was established for Texas Genco on
September 1, 2004 and the Company transferred a net pension liability of
approximately $68 million to Texas Genco. In October 2004, Texas Genco received
an allocation of assets from the Company's pension plan pursuant to rules and
regulations under the Employee Retirement Income Security Act of 1974.

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In addition to the non-contributory pension plans discussed above, the
Company maintains a non-qualified benefit restoration plan which allows
participants to retain the benefits to which they would have been entitled under
the Company's non-contributory pension plan except for the federally mandated
limits on qualified plan benefits or on the level of compensation on which
qualified plan benefits may be calculated. The expense associated with this
non-qualified plan was $9 million, $8 million and $6 million in 2002, 2003 and
2004, respectively. Included in the net benefit cost in 2002 is $3 million of
expense related to RRI's participants, which is reflected in discontinued
operations in the Statements of Consolidated Operations. The accrued benefit
liability for the non-qualified pension plan was $75 million and $69 million at
December 31, 2003 and 2004, respectively. In addition, these accrued benefit
liabilities include the recognition of minimum liability adjustments of $15
million as of December 31, 2003 and $10 million as of December 31, 2004, which
are reported as a component of other comprehensive income, net of income tax
effects.

The following table displays the Company's plans that have or have had
accumulated benefit obligations in excess of plan assets:

The Company has a qualified employee savings plan that includes a cash or
deferred arrangement under Section 401(k) of the Internal Revenue Code of 1986,
as amended (the Code), and an employee stock ownership plan (ESOP) under Section
4975(e)(7) of the Code. Under the plan, participating employees may contribute a
portion of their compensation, on a pre-tax or after-tax basis, generally up to
a maximum of 16% of compensation. The Company matches 75% of the first 6% of
each employee's compensation contributed. The Company may contribute an
additional discretionary match of up to 50% of the first 6% of each employee's
compensation contributed. These matching contributions are fully vested at all
times.

Participating employees may elect to invest all or a portion of their
contributions to the plan in CenterPoint Energy common stock, to have dividends
reinvested in additional shares or to receive dividend payments in cash on any
investment in CenterPoint Energy common stock, and to transfer all or part of
their investment in CenterPoint Energy common stock to other investment options
offered by the plan.

During the first quarter 2004, the Company repaid the balance on the ESOP
loan. As a result, the Company's matching requirements during 2004 were
satisfied, in part, through the allocation of the remaining 911,847 ESOP shares
held by the plan and by cash contributions.

As a result of the ESOP, the savings plan has significant holdings of
CenterPoint Energy common stock. As of December 31, 2004, an aggregate of
27,565,537 shares of CenterPoint Energy's common stock were held by the savings
plan, which represented 26% of its investments. Given the concentration of the
investments in CenterPoint Energy's common stock, the savings plan and its
participants have market risk related to this investment.

The Company's savings plan benefit expense was $47 million, $38 million and
$40 million in 2002, 2003 and 2004, respectively. Included in these amounts is
$6 million of savings plan benefit expense for 2002 related

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to RRI's participants, and $9 million, $7 million and $6 million of savings plan
benefit expense for 2002, 2003 and 2004, respectively, related to Texas Genco
participants. Amounts for RRI's and Texas Genco's participants are reflected as
discontinued operations in the Statements of Consolidated Operations.

(D) POSTEMPLOYMENT BENEFITS

Net postemployment benefit costs for former or inactive employees, their
beneficiaries and covered dependents, after employment but before retirement
(primarily healthcare and life insurance benefits for participants in the
long-term disability plan) were $12 million, $10 million and $8 million in 2002,
2003 and 2004, respectively. Included in these amounts are $1 million for each
of the years 2002, 2003, and 2004 related to Texas Genco participants, which is
reflected in discontinued operations in the Statements of Consolidated
Operations.

The Company's postemployment obligation is presented as a liability in the
Consolidated Balance Sheets under the caption "Benefit Obligations."

(E) OTHER NON-QUALIFIED PLANS

The Company has non-qualified deferred compensation plans that provide
benefits payable to directors, officers and certain key employees or their
designated beneficiaries at specified future dates, upon termination, retirement
or death. Benefit payments are made from the general assets of the Company.
During 2002, 2003 and 2004, the Company recorded benefit expense relating to
these programs of $11 million, $13 million and $9 million, respectively.
Included in "Benefit Obligations" in the accompanying Consolidated Balance
Sheets at December 31, 2003 and 2004 was $127 million and $121 million,
respectively, relating to deferred compensation plans. Included in "Non-Current
Liabilities of Discontinued Operations in the accompanying Consolidated Balance
Sheets at December 31, 2003 and 2004 was $4 million and $3 million,
respectively, relating to deferred compensation plans for Texas Genco
participants.

(F) CHANGE OF CONTROL AGREEMENTS AND OTHER EMPLOYEE MATTERS

In December 2003, the Company entered into agreements with certain of its
executive officers that generally provide, to the extent applicable, in the case
of a change of control of the Company and termination of employment, for
severance benefits of up to three times annual base salary plus bonus and other
benefits. By their terms, these agreements will expire December 31, 2006.

As of December 31, 2004, approximately 31% of the Company's employees are
subject to collective bargaining agreements. Four of these agreements, covering
approximately 9% of the Company's employees, have expired or will expire in
2005.

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(10) INCOME TAXES

The Company's current and deferred components of income tax expense
(benefit) were as follows:

CenterPoint Energy's consolidated federal income tax returns have been
audited and settled through the 1996 tax year. The 1997 through 2003
consolidated federal income tax returns are currently under audit.

Tax Attribute Carryforwards. At December 31, 2004, the Company has $327 of
state net operating loss carryforwards. The losses are available to offset
future state taxable income through the year 2023.

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Substantially all of the state loss carryforwards will expire between 2012 and
2020. A valuation allowance has been established against approximately 33% of
the state net operating loss carryforwards.

The valuation allowance reflects a net decrease of $10 million and $53
million in 2003 and 2004, respectively. These net changes resulted from a
reassessment of the Company's future ability to use federal and state capital
loss carryforwards and state tax net operating loss carryforwards.

Tax Refunds. In 2003 and 2004, the Company received refunds from the
Internal Revenue Service (IRS) of $203 million and $163 million, respectively,
related to federal tax net operating losses and capital losses generated in 2002
and 2003. Of the 2002 amount, $8 million related to refunds generated from the
carryback of the federal capital loss.

Tax Contingencies. With the conclusion of the federal income tax audit for
the years 1997 through 2000, the Company adjusted its prior years' federal
income tax reserve, along with certain previously recorded deferred tax assets,
resulting in net additional tax expense in the fourth quarter of 2004 of $26
million. In addition, as of December 31, 2004, $42 million of federal tax
reserve has been reclassified to current tax liability.

In the 1997 through 2000 audit, the IRS disallowed all deductions for
original issue discount (OID) relating to the Company's ZENS and 7% Automatic
Common Exchange Securities (ACES). It is the contention of the IRS that (1)
those instruments, in combination with our long position in TW Common,
constitute a straddle under Section 1092 and 246 of the Code and (2) the
indebtedness underlying those instruments was incurred to carry the TW Common.
If the IRS prevails on both of these positions, all OID (including interest
actually paid) on the ZENS and ACES would not be currently deductible, but would
instead be added to the Company's basis in the TW Common it holds. The
capitalization of OID to the TW Common basis would have the effect of
recharacterizing ordinary interest deductions to capital losses or reduced
capital gains.

The Company's ability to realize the tax benefit of future capital losses,
if any, from the sale of the 21.6 million shares of TW Common currently held
will depend on the timing of those sales, the value of TW Common stock when
sold, and the extent of any other capital gains and losses.

Although the Company is protesting the contention of the IRS, the Company
has established a tax reserve for this issue of $79 million. The Company has
also reserved for other significant tax items including issues relating to
acquisitions, capital cost recovery and certain positions taken with respect to
state tax filings. The total amount reserved for the other items is
approximately $31 million.

(11) COMMITMENTS AND CONTINGENCIES

(a) FUEL COMMITMENTS

Fuel commitments, excluding Texas Genco, include natural gas contracts
related to the Company's natural gas distribution operations, which have various
quantity requirements and durations that are not classified as non-trading
derivatives assets and liabilities in the Company's Consolidated Balance Sheets
as of December 31, 2004 as these contracts meet the SFAS No. 133 exception to be
classified as "normal purchases contracts" or do not meet the definition of a
derivative. Minimum payment obligations for natural gas supply contracts are
approximately $807 million in 2005, $401 million in 2006, $193 million in 2007,
$29 million in 2008 and $1 million in 2009.

Total lease expense for all operating leases was $36 million, $35 million
and $32 million during 2002, 2003 and 2004, respectively.

(c) LEGAL, ENVIRONMENTAL AND OTHER REGULATORY MATTERS

Legal Matters

RRI Indemnified Litigation

The Company, CenterPoint Houston or their predecessor, Reliant Energy, and
certain of their former subsidiaries are named as defendants in several lawsuits
described below. Under a master separation agreement between the Company and
RRI, the Company and its subsidiaries are entitled to be indemnified by RRI for
any losses, including attorneys' fees and other costs, arising out of the
lawsuits described below under Electricity and Gas Market Manipulation Cases and
Other Class Action Lawsuits. Pursuant to the indemnification obligation, RRI is
defending the Company and its subsidiaries to the extent named in these
lawsuits. The ultimate outcome of these matters cannot be predicted at this
time.

Electricity and Gas Market Manipulation Cases. A large number of lawsuits
have been filed against numerous market participants and remain pending in both
federal and state courts in California and Nevada in connection with the
operation of the electricity and natural gas markets in California and certain
other western states in 2000-2001, a time of power shortages and significant
increases in prices. These lawsuits, many of which have been filed as class
actions, are based on a number of legal theories, including violation of state
and federal antitrust laws, laws against unfair and unlawful business practices,
the federal Racketeer Influenced Corrupt Organization Act, false claims statutes
and similar theories and breaches of contracts to supply power to governmental
entities. Plaintiffs in these lawsuits, which include state officials and
governmental entities as well as private litigants, are seeking a variety of
forms of relief, including recovery of compensatory damages (in some cases in
excess of $1 billion), a trebling of compensatory damages and punitive damages,
injunctive relief, restitution, interest due, disgorgement, civil penalties and
fines, costs of suit, attorneys' fees and divestiture of assets. To date, some
of these complaints have been dismissed by the trial court and are on appeal,
several of which dismissals have been affirmed by the appellate courts, but most
of the lawsuits remain in early procedural stages. The Company's former
subsidiary, RRI, was a participant in the California markets, owning generating
plants in the state and participating in both electricity and natural gas
trading in that state and in western power markets generally. RRI, some of its
subsidiaries and, in some cases, corporate officers of some of those companies
have been named as defendants in these suits.

The Company or its predecessor, Reliant Energy, have been named in
approximately 30 of these lawsuits, which were instituted between 2001 and 2004
and are pending in California state courts in Alameda County, Los Angeles
County, San Francisco County, San Mateo County and San Diego County, in Nevada
state court

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

in Clark County, in federal district courts in San Francisco, San Diego, Los
Angeles, Fresno, Sacramento and Nevada and before the Ninth Circuit Court of
Appeals. However, the Company, CenterPoint Houston and Reliant Energy were not
participants in the electricity or natural gas markets in California. The
Company and Reliant Energy have been dismissed from certain of the lawsuits,
either voluntarily by the plaintiffs or by order of the court and the Company
believes it is not a proper defendant in the remaining cases and will continue
to seek dismissal from such remaining cases. On July 6, 2004 and on October 12,
2004, the Ninth Circuit affirmed the Company's removal to federal district court
of two electric cases brought by the California Attorney General and affirmed
the federal court's dismissal of these cases based upon the filed rate doctrine
and federal preemption.

Other Class Action Lawsuits. Fifteen class action lawsuits filed in May,
June and July 2002 on behalf of purchasers of securities of RRI and/or Reliant
Energy have been consolidated in federal district court in Houston. RRI and
certain of its former and current executive officers are named as defendants.
The consolidated complaint also names RRI , Reliant Energy, the underwriters of
the initial public offering of RRI's common stock in May 2001 (RRI Offering),
and RRI's and Reliant Energy's independent auditors as defendants. The
consolidated amended complaint seeks monetary relief purportedly on behalf of
purchasers of common stock of Reliant Energy or RRI during certain time periods
ranging from February 2000 to May 2002, and purchasers of common stock that can
be traced to the RRI Offering. The plaintiffs allege, among other things, that
the defendants misrepresented their revenues and trading volumes by engaging in
round-trip trades and improperly accounted for certain structured transactions
as cash-flow hedges, which resulted in earnings from these transactions being
accounted for as future earnings rather than being accounted for as earnings in
fiscal year 2001. In January 2004 the trial judge dismissed the plaintiffs'
allegations that the defendants had engaged in fraud, but claims based on
alleged misrepresentations in the registration statement issued in the RRI
Offering remain. In June 2004, the plaintiffs filed a motion for class
certification, which the court granted in February 2005. The defendants have
appealed the court's order certifying the class.

In February 2003, a lawsuit was filed by three individuals in federal
district court in Chicago against CenterPoint Energy and certain former officers
of RRI for alleged violations of federal securities laws. The plaintiffs in this
lawsuit allege that the defendants violated federal securities laws by issuing
false and misleading statements to the public, and that the defendants made
false and misleading statements as part of an alleged scheme to artificially
inflate trading volumes and revenues. In addition, the plaintiffs assert claims
of fraudulent and negligent misrepresentation and violations of Illinois
consumer law. In January 2004 the trial judge ordered dismissal of plaintiffs'
claims on the ground that they did not set forth a claim. The plaintiffs filed
an amended complaint in March 2004, which the defendants asked the court to
dismiss. On August 18, 2004, the court granted the defendants' motion to dismiss
with prejudice.

In May 2002, three class action lawsuits were filed in federal district
court in Houston on behalf of participants in various employee benefits plans
sponsored by Reliant Energy. Two of the lawsuits have been dismissed without
prejudice. Reliant Energy and certain current and former members of its benefits
committee are the remaining defendants in the third lawsuit. That lawsuit
alleges that the defendants breached their fiduciary duties to various employee
benefits plans, directly or indirectly sponsored by Reliant Energy, in violation
of the Employee Retirement Income Security Act of 1974. The plaintiffs allege
that the defendants permitted the plans to purchase or hold securities issued by
Reliant Energy when it was imprudent to do so, including after the prices for
such securities became artificially inflated because of alleged securities fraud
engaged in by the defendants. The complaint seeks monetary damages for losses
suffered on behalf of the plans and a putative class of plan participants whose
accounts held Reliant Energy or RRI securities, as well as restitution. In July
2004, another class action suit was filed in federal court on behalf of the
Reliant Energy Savings Plan and a class consisting of participants in that plan
against Reliant Energy and the Reliant Energy Benefits Committee. The
allegations and the relief sought in the new suit are substantially similar to
those in the previously pending suit; however, the new suit also alleges that
Reliant Energy and its Benefits Committee breached their fiduciary duties to the
Savings Plan and its participants by investing plan funds in

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Reliant Energy stock when Reliant Energy or its subsidiaries were allegedly
manipulating the California energy market. On October 14, 2004, the plaintiff
voluntarily dismissed the newly filed lawsuit.

In October 2002, a derivative action was filed in the federal district
court in Houston against the directors and officers of the Company. The
complaint set forth claims for breach of fiduciary duty, waste of corporate
assets, abuse of control and gross mismanagement. Specifically, the shareholder
plaintiff alleged that the defendants caused the Company to overstate its
revenues through so-called "round trip" transactions. The plaintiff also alleged
breach of fiduciary duty in connection with the spin-off of RRI and the RRI
Offering. The complaint sought monetary damages on behalf of the Company as well
as equitable relief in the form of a constructive trust on the compensation paid
to the defendants. The Company's board of directors investigated that demand and
similar allegations made in a June 28, 2002 demand letter sent on behalf of a
Company shareholder. The second letter demanded that the Company take several
actions in response to alleged round-trip trades occurring in 1999, 2000, and
2001. In June 2003, the board determined that these proposed actions would not
be in the best interests of the Company. In March 2003, the court dismissed this
case on the grounds that the plaintiff did not make an adequate demand on the
Company before filing suit. Thereafter, the plaintiff sent another demand
asserting the same claims.

The Company believes that none of the lawsuits described under Other Class
Action Lawsuits has merit because, among other reasons, the alleged
misstatements and omissions were not material and did not result in any damages
to the plaintiffs.

Other Legal Matters

Texas Antitrust Actions. In July 2003, Texas Commercial Energy filed in
federal court in Corpus Christi, Texas a lawsuit against Reliant Energy, the
Company and CenterPoint Houston, as successors to Reliant Energy, Genco LP, RRI,
Reliant Energy Solutions, LLC, several other RRI subsidiaries and a number of
other participants in the Electric Reliability Council of Texas (ERCOT) power
market. The plaintiff, a retail electricity provider with the ERCOT market,
alleged that the defendants conspired to illegally fix and artificially increase
the price of electricity in violation of state and federal antitrust laws and
committed fraud and negligent misrepresentation. The lawsuit sought damages in
excess of $500 million, exemplary damages, treble damages, interest, costs of
suit and attorneys' fees. The plaintiff's principal allegations had previously
been investigated by the Texas Utility Commission and found to be without merit.
In June 2004, the federal court dismissed the plaintiff's claims and in July
2004, the plaintiff filed a notice of appeal. The Company is vigorously
contesting the appeal. The ultimate outcome of this matter cannot be predicted
at this time.

In February 2005, Utility Choice Electric filed in federal court in
Houston, Texas a lawsuit against the Company, CenterPoint Houston, CenterPoint
Energy Gas Services, Inc., CenterPoint Energy Alternative Fuels, Inc., Genco LP
and a number of other participants in the ERCOT power market. The plaintiff, a
retail electricity provider with the ERCOT market, alleged that the defendants
conspired to illegally fix and artificially increase the price of electricity in
violation of state and federal antitrust laws, intentionally interfered with
prospective business relationships and contracts, and committed fraud and
negligent misrepresentation. The plaintiff's principal allegations had
previously been investigated by the Texas Utility Commission and found to be
without merit. The Company intends to vigorously defend the case. The ultimate
outcome of this matter cannot be predicted at this time.

Municipal Franchise Fee Lawsuits. In February 1996, the cities of Wharton,
Galveston and Pasadena (Three Cities) filed suit in state district court in
Harris County, Texas for themselves and a proposed class of all similarly
situated cities in Reliant Energy's electric service area, against Reliant
Energy and Houston Industries Finance, Inc. (formerly a wholly owned subsidiary
of the Company's predecessor, Reliant Energy) alleging underpayment of municipal
franchise fees. The plaintiffs claimed that they were entitled to 4% of all
receipts of any kind for business conducted within these cities over the
previous four decades. After a jury trial

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involving the Three Cities' claims (but not the class of cities), the trial
court entered a judgment on the Three Cities' breach of contract claims for $1.7
million, including interest, plus an award of $13.7 million in legal fees. It
also decertified the class. Following this ruling, 45 cities filed individual
suits against Reliant Energy in the District Court of Harris County.

On February 27, 2003, a state court of appeals in Houston rendered an
opinion reversing the judgment against the Company and rendering judgment that
the Three Cities take nothing by their claims. The court of appeals held that
all of the Three Cities' claims were barred by the jury's finding of laches, a
defense similar to the statute of limitations, due to the Three Cities' having
unreasonably delayed bringing their claims during the more than 30 years since
the alleged wrongs began. The court also held that the Three Cities were not
entitled to recover any attorneys' fees. The Three Cities filed a petition for
review to the Texas Supreme Court, which declined to hear the case. Thus, the
Three Cities' claims have been finally resolved in the Company's favor, but the
individual claims of the 45 cities remain pending in the same court.

Natural Gas Measurement Lawsuits. CERC Corp. and certain of its
subsidiaries are defendants in a suit filed in 1997 under the Federal False
Claims Act alleging mismeasurement of natural gas produced from federal and
Indian lands. The suit seeks undisclosed damages, along with statutory
penalties, interest, costs, and fees. The complaint is part of a larger series
of complaints filed against 77 natural gas pipelines and their subsidiaries and
affiliates. An earlier single action making substantially similar allegations
against the pipelines was dismissed by the federal district court for the
District of Columbia on grounds of improper joinder and lack of jurisdiction. As
a result, the various individual complaints were filed in numerous courts
throughout the country. This case has been consolidated, together with the other
similar False Claims Act cases, in the federal district court in Cheyenne,
Wyoming.

In addition, CERC Corp. and certain of its subsidiaries are defendants in
two mismeasurement lawsuits brought against approximately 245 pipeline companies
and their affiliates pending in state court in Stevens County, Kansas. In one
case (originally filed in May 1999 and amended four times), the plaintiffs
purport to represent a class of royalty owners who allege that the defendants
have engaged in systematic mismeasurement of the volume of natural gas for more
than 25 years. The plaintiffs amended their petition in this suit in July 2003
in response to an order from the judge denying certification of the plaintiffs'
alleged class. In the amendment the plaintiffs dismissed their claims against
certain defendants (including two CERC subsidiaries), limited the scope of the
class of plaintiffs they purport to represent and eliminated previously asserted
claims based on mismeasurement of the Btu content of the gas. The same
plaintiffs then filed a second lawsuit, again as representatives of a class of
royalty owners, in which they assert their claims that the defendants have
engaged in systematic mismeasurement of the Btu content of natural gas for more
than 25 years. In both lawsuits, the plaintiffs seek compensatory damages, along
with statutory penalties, treble damages, interest, costs and fees. CERC and its
subsidiaries believe that there has been no systematic mismeasurement of gas and
that the suits are without merit. CERC does not expect that the ultimate outcome
will have a material impact on the financial condition or results of operations
of either the Company or CERC.

Gas Cost Recovery Litigation. In October 2002, a suit was filed in state
district court in Wharton County, Texas against the Company, CERC, Entex Gas
Marketing Company, and certain non-affiliated companies alleging fraud,
violations of the Texas Deceptive Trade Practices Act, violations of the Texas
Utilities Code, civil conspiracy and violations of the Texas Free Enterprise and
Antitrust Act with respect to rates charged to certain consumers of natural gas
in the State of Texas. Subsequently the plaintiffs added as defendants
CenterPoint Energy Marketing Inc., CenterPoint Energy Gas Transmission Company,
United Gas, Inc., Louisiana Unit Gas Transmission Company, CenterPoint Energy
Pipeline Services, Inc., and CenterPoint Energy Trading and Transportation
Group, Inc. The plaintiffs allege that defendants inflated the prices charged to
certain consumers of natural gas. In February 2003, a similar suit was filed in
state court in Caddo Parish, Louisiana against CERC with respect to rates
charged to a purported class of certain consumers of natural gas and gas service
in the State of Louisiana. In February 2004, another suit was filed in

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state court in Calcasieu Parish, Louisiana against CERC seeking to recover
alleged overcharges for gas or gas services allegedly provided by Southern Gas
Operations to a purported class of certain consumers of natural gas and gas
service without advance approval by the LPSC. In October 2004, a similar case
was filed in district court in Miller County, Arkansas against the Company,
CERC, Entex Gas Marketing Company, CenterPoint Energy Gas Transmission Company,
CenterPoint Energy Field Services, CenterPoint Energy Pipeline Services, Inc.,
Mississippi River Transmission Corp. and other non-affiliated companies alleging
fraud, unjust enrichment and civil conspiracy with respect to rates charged to
certain consumers of natural gas in at least the states of Arkansas, Louisiana,
Mississippi, Oklahoma and Texas. At the time of the filing of each of the Caddo
and Calcasieu Parish cases, the plaintiffs in those cases filed petitions with
the LPSC relating to the same alleged rate overcharges. The Caddo and Calcasieu
Parish cases have been stayed pending the resolution of the respective
proceedings by the LPSC. The plaintiffs in the Miller County case seek class
certification, but the proposed class has not been certified. In November 2004,
the Miller County case was removed to federal district court in Texarkana,
Arkansas. In February 2005, the Wharton County case was removed to federal
district court in Houston, Texas, and in March 2005, the plaintiffs in the
Wharton County case moved to dismiss the case and agreed not to refile the
claims asserted unless the Miller County case is not certified as a class action
or is later decertified. The range of relief sought by the plaintiffs in these
cases includes injunctive and declaratory relief, restitution for the alleged
overcharges, exemplary damages or trebling of actual damages, civil penalties
and attorney's fees. In these cases, the Company, CERC and their affiliates deny
that they have overcharged any of their customers for natural gas and believe
that the amounts recovered for purchased gas have been in accordance with what
is permitted by state regulatory authorities. The Company and CERC do not
anticipate that the outcome of these matters will have a material impact on the
financial condition or results of operations of either the Company or CERC.

Texas Genco Shareholder Litigation. On July 23, 2004, two plaintiffs, both
Texas Genco shareholders, filed virtually identical lawsuits in Harris County,
Texas district court. These suits, purportedly brought on behalf of holders of
Texas Genco common stock, name Texas Genco and each of that company's directors
as defendants. Both plaintiffs allege, among other things, self-dealing and
breach of fiduciary duty by the defendants in entering into the July 2004
agreement to sell Texas Genco. As part of their allegations of self-dealing,
both plaintiffs claim that the board of directors of Texas Genco is controlled
by CenterPoint Energy, that the defendants improperly concealed results of Texas
Genco's results of operations for the second quarter of 2004 until after the
transaction agreement was announced and that, in order to aid CenterPoint
Energy, the Texas Genco board only searched for acquirers who would offer
all-cash consideration. Plaintiffs seek to enjoin the transaction or,
alternatively, rescind the transaction and/or recover damages in the event that
the transaction is consummated. In August 2004, the cases were consolidated in
state district court in Harris County, Texas. Although the defendants continue
to deny liability, in February 2005, all parties entered into a Memorandum of
Understanding to settle the lawsuit based upon supplemental disclosures made by
Texas Genco and the extension of the deadline for the exercise of shareholder
dissenters' rights. The settlement is subject to the parties' preparation of a
stipulation of settlement and court approval of the settlement.

ENVIRONMENTAL MATTERS

Hydrocarbon Contamination. CERC Corp. and certain of its subsidiaries are
among the defendants in lawsuits filed beginning in August 2001 in Caddo Parish
and Bossier Parish, Louisiana. The suits allege that, at some unspecified date
prior to 1985, the defendants allowed or caused hydrocarbon or chemical
contamination of the Wilcox Aquifer, which lies beneath property owned or leased
by certain of the defendants and which is the sole or primary drinking water
aquifer in the area. The primary source of the contamination is alleged by the
plaintiffs to be a gas processing facility in Haughton, Bossier Parish,
Louisiana known as the "Sligo Facility," which was formerly operated by a
predecessor in interest of CERC Corp. This facility was purportedly used for
gathering natural gas from surrounding wells, separating gasoline and
hydrocarbons from the natural gas for marketing, and transmission of natural gas
for distribution.

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CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Beginning about 1985, the predecessors of certain CERC Corp. defendants
engaged in a voluntary remediation of any subsurface contamination of the
groundwater below the property they owned or leased. This work has been done in
conjunction with and under the direction of the Louisiana Department of
Environmental Quality. The plaintiffs seek monetary damages for alleged damage
to the aquifer underlying their property, unspecified alleged personal injuries,
alleged fear of cancer, alleged property damage or diminution of value of their
property, and, in addition, seek damages for trespass, punitive, and exemplary
damages. The Company believes the ultimate cost associated with resolving this
matter will not have a material impact on the financial condition or results of
operations of either the Company or CERC.

Manufactured Gas Plant Sites. CERC and its predecessors operated
manufactured gas plants (MGP) in the past. In Minnesota, CERC has completed
remediation on two sites, other than ongoing monitoring and water treatment.
There are five remaining sites in CERC's Minnesota service territory. CERC
believes that it has no liability with respect to two of these sites.

At December 31, 2004, CERC had accrued $18 million for remediation of
certain Minnesota sites. At December 31, 2004, the estimated range of possible
remediation costs for these sites was $7 million to $42 million based on
remediation continuing for 30 to 50 years. The cost estimates are based on
studies of a site or industry average costs for remediation of sites of similar
size. The actual remediation costs will be dependent upon the number of sites to
be remediated, the participation of other potentially responsible parties (PRP),
if any, and the remediation methods used. CERC has utilized an environmental
expense tracker mechanism in its rates in Minnesota to recover estimated costs
in excess of insurance recovery. As of December 31, 2004, CERC has collected or
accrued $13 million from insurance companies and ratepayers to be used for
future environmental remediation.

In addition to the Minnesota sites, the United States Environmental
Protection Agency and other regulators have investigated MGP sites that were
owned or operated by CERC or may have been owned by one of its former
affiliates. CERC has not been named by these agencies as a PRP for any of those
sites. CERC has been named as a defendant in lawsuits under which contribution
is sought for the cost to remediate former MGP sites based on the previous
ownership of such sites by former affiliates of CERC or its divisions. The
Company is investigating details regarding these sites and the range of
environmental expenditures for potential remediation. However, CERC believes it
is not liable as a former owner or operator of those sites under the
Comprehensive Environmental, Response, Compensation and Liability Act of 1980,
as amended, and applicable state statutes, and is vigorously contesting those
suits.

Mercury Contamination. The Company's pipeline and distribution operations
have in the past employed elemental mercury in measuring and regulating
equipment. It is possible that small amounts of mercury may have been spilled in
the course of normal maintenance and replacement operations and that these
spills may have contaminated the immediate area with elemental mercury. This
type of contamination has been found by the Company at some sites in the past,
and the Company has conducted remediation at these sites. It is possible that
other contaminated sites may exist and that remediation costs may be incurred
for these sites. Although the total amount of these costs cannot be known at
this time, based on experience by the Company and that of others in the natural
gas industry to date and on the current regulations regarding remediation of
these sites, the Company believes that the costs of any remediation of these
sites will not be material to the Company's financial condition, results of
operations or cash flows.

Asbestos. A number of facilities owned by the Company contain significant
amounts of asbestos insulation and other asbestos-containing materials. The
Company or its subsidiaries have been named, along with numerous others, as a
defendant in lawsuits filed by a large number of individuals who claim injury
due to exposure to asbestos. Most claimants in such litigation have been workers
who participated in construction of various industrial facilities, including
power plants. Some of the claimants have worked at locations owned by the
Company, but most existing claims relate to facilities previously owned by the
Company but currently owned by Texas Genco LLC. The Company anticipates that
additional claims like those received may be

121

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

asserted in the future. Under the terms of the separation agreement between the
Company and Texas Genco, ultimate financial responsibility for uninsured losses
relating to these claims has been assumed by Texas Genco, but under the terms of
its agreement to sell Texas Genco to Texas Genco LLC, the Company has agreed to
continue to defend such claims to the extent they are covered by insurance
maintained by the Company, subject to reimbursement of the costs of such defense
from Texas Genco LLC. Although their ultimate outcome cannot be predicted at
this time, the Company intends to continue vigorously contesting claims that it
does not consider to have merit and does not believe, based on its experience to
date, that these matters, either individually or in the aggregate, will have a
material adverse effect on the Company's financial condition, results of
operations or cash flows.

Other Environmental. From time to time the Company has received notices
from regulatory authorities or others regarding its status as a PRP in
connection with sites found to require remediation due to the presence of
environmental contaminants. In addition, the Company has been named from time to
time as a defendant in litigation related to such sites. Although the ultimate
outcome of such matters cannot be predicted at this time, the Company does not
believe, based on its experience to date, that these matters, either
individually or in the aggregate, will have a material adverse effect on the
Company's financial condition, results of operations or cash flows.

OTHER PROCEEDINGS

The Company is involved in other legal, environmental, tax and regulatory
proceedings before various courts, regulatory commissions and governmental
agencies regarding matters arising in the ordinary course of business. Some of
these proceedings involve substantial amounts. The Company's management
regularly analyzes current information and, as necessary, provides accruals for
probable liabilities on the eventual disposition of these matters. The Company's
management believes that the disposition of these matters will not have a
material adverse effect on the Company's financial condition, results of
operations or cash flows.

TEXAS GENCO MATTERS

Nuclear Insurance. Texas Genco and the other owners of the South Texas
Project maintain nuclear property and nuclear liability insurance coverage as
required by law and periodically review available limits and coverage for
additional protection. The owners of the South Texas Project currently maintain
$2.75 billion in property damage insurance coverage, which is above the legally
required minimum, but is less than the total amount of insurance currently
available for such losses.

Under the Price Anderson Act, the maximum liability to the public of owners
of nuclear power plants was $10.8 billion as of December 31, 2004. Owners are
required under the Price Anderson Act to insure their liability for nuclear
incidents and protective evacuations. Texas Genco and the other owners currently
maintain the required nuclear liability insurance and participate in the
industry retrospective rating plan under which the owners of the South Texas
Project are subject to maximum retrospective assessments in the aggregate per
incident of up to $100.6 million per reactor. The owners are jointly and
severally liable at a rate not to exceed $10 million per reactor per year per
incident.

There can be no assurance that all potential losses or liabilities
associated with the South Texas Project will be insurable, or that the amount of
insurance will be sufficient to cover them. Any substantial losses not covered
by insurance would have a material effect on Texas Genco's financial condition,
results of operations and cash flows.

Nuclear Decommissioning. CenterPoint Houston, as collection agent for the
nuclear decommissioning charge assessed on its transmission and distribution
customers, contributed $2.9 million in 2004 to trusts established to fund Texas
Genco's share of the decommissioning costs for the South Texas Project, and
expects to contribute $2.9 million in 2005. There are various investment
restrictions imposed upon Texas

122

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Genco by the Texas Utility Commission and the NRC relating to Texas Genco's
nuclear decommissioning trusts. Texas Genco and CenterPoint Houston have each
appointed two members to the Nuclear Decommissioning Trust Investment Committee
which establishes the investment policy of the trusts and oversees the
investment of the trusts' assets. The securities held by the trusts for
decommissioning costs had an estimated fair value of $216 million as of December
31, 2004, of which approximately 36% were fixed-rate debt securities and the
remaining 64% were equity securities. In May 2004, an outside consultant
estimated Texas Genco's portion of decommissioning costs to be approximately
$456 million. While the funding levels currently exceed minimum NRC
requirements, no assurance can be given that the amounts held in trust will be
adequate to cover the actual decommissioning costs of the South Texas Project.
Such costs may vary because of changes in the assumed date of decommissioning
and changes in regulatory requirements, technology and costs of labor, materials
and equipment. Pursuant to the Texas electric restructuring law, costs
associated with nuclear decommissioning that were not recovered as of January 1,
2002, will continue to be subject to cost-of-service rate regulation and will be
charged to transmission and distribution customers of CenterPoint Houston or its
successor.

(12) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair values of cash and cash equivalents, investments in debt and
equity securities classified as "available-for-sale" and "trading" in accordance
with SFAS No. 115, and short-term borrowings are estimated to be approximately
equivalent to carrying amounts and have been excluded from the table below. The
fair values of non-trading derivative assets and liabilities are equivalent to
their carrying amounts in the Consolidated Balance Sheets at December 31, 2003
and 2004 and have been determined using quoted market prices for the same or
similar instruments when available or other estimation techniques (see Note 5).
Therefore, these financial instruments are stated at fair value and are excluded
from the table below.

(1) Options to purchase 9,709,272, 10,106,673 and 11,892,508 shares were
outstanding for the years ended December 31, 2002, 2003 and 2004,
respectively, but were not included in the computation of diluted EPS
because the options' exercise price was greater than the average market
price of the common shares for the respective years.

124

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company's $575 million contingently convertible notes are included in
the calculation of diluted earnings per share pursuant to EITF 04-8. The
Company's $255 million contingently convertible notes are not included in the
calculation of diluted earnings per share because the terms of this debt
instrument were modified prior to December 31, 2004 to provide for only cash
settlement of the principal amount upon conversion as required by EITF 04-8.
Diluted earnings per share for 2003 has been restated for the adoption of EITF
04-8 effective December 31, 2004. See Note 2(n) for further discussion of the
Company's adoption of EITF 04-8.

(14) UNAUDITED QUARTERLY INFORMATION

The consolidated financial statements have been prepared to reflect the
effect of the RRI Distribution, the sale of the Company's remaining Latin
America operations, the sale of CEMS and the sale of Texas Genco as described in
Note 3. Accordingly, the consolidated financial statements present the RRI and
Texas Genco businesses and the Company's Latin America and CEMS operations as
discontinued operations, in accordance with SFAS No. 144.

(1) Quarterly earnings per common share are based on the weighted average number
of shares outstanding during the quarter, and the sum of the quarters may
not equal annual earnings per common share. The Company's $575 million
contingently convertible notes are not included in the calculation of
diluted earnings per share during the first three quarters of 2004 as they
were anti-dilutive due to lower income from continuing operations in these
periods. However, the $575 million contingently convertible notes are
included in the calculation of diluted earnings per share for the fourth
quarter of 2004 and the year ended December 31, 2004 as they are dilutive.

(15) REPORTABLE BUSINESS SEGMENTS

The Company's determination of reportable business segments considers the
strategic operating units under which the Company manages sales, allocates
resources and assesses performance of various products and services to wholesale
or retail customers in differing regulatory environments. The accounting
policies of the business segments are the same as those described in the summary
of significant accounting policies except that some executive benefit costs have
not been allocated to business segments.

The Company's reportable business segments include the following: Electric
Transmission & Distribution, Natural Gas Distribution, Pipelines and Gathering
and Other Operations. The electric transmission and distribution function
(CenterPoint Houston) is reported in the Electric Transmission & Distribution
business segment. Natural Gas Distribution consists of intrastate natural gas
sales to, and natural gas transportation and distribution for, residential,
commercial, industrial and institutional customers and non-rate regulated retail
gas marketing operations for commercial and industrial customers. Pipelines and
Gathering includes the interstate natural gas pipeline operations and the
natural gas gathering and pipeline services businesses. Other Operations
consists primarily of other corporate operations which support all of the
Company's business operations. Reportable business segments presented herein do
not include the operations of RRI which are

126

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

presented as discontinued operations within these consolidated financial
statements. The Company's Latin America operations and its energy management
services business, which were previously reported in the Other Operations
business segment, are presented as discontinued operations within these
consolidated financial statements. Additionally, the Company's generation
operations, which were previously reported in the Electric Generation business
segment, are presented as discontinued operations within these consolidated
financial statements.

Long-lived assets include net property, plant and equipment, net goodwill
and other intangibles and equity investments in unconsolidated subsidiaries. The
Company accounts for intersegment sales as if the sales were to third parties,
that is, at current market prices.

Financial data for business segments and products and services are as
follows:

(1) Revenues from external customers for the Electric Transmission &
Distribution business segment include ECOM revenues of $697 million and $661
million for 2002 and 2003, respectively.

(2) Sales to subsidiaries of RRI in 2002, 2003 and 2004 represented
approximately $820 million, $948 million and $882 million, respectively, of
CenterPoint Houston's transmission and distribution revenues. RRI has been
presented as discontinued operations in these consolidated financial
statements.

127

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(3) Sales to Texas Genco in 2002, 2003 and 2004 represented approximately $26
million, $28 million and $20 million, respectively, of the Natural Gas
Distribution business segment's revenues from external customers. Texas
Genco has been presented as discontinued operations in these consolidated
financial statements.

(4) Sales to Texas Genco in 2002, 2003 and 2004 represented approximately $2
million, $3 million and $2 million, respectively, of the Pipelines and
Gathering business segment's revenues from external customers. Texas Genco
has been presented as discontinued operations in these consolidated
financial statements.

(5) Included in total assets of Other Operations as of December 31, 2004 is a
pension asset of $610 million. See Note 9 for further discussion.

On January 26, 2005, the Company's board of directors declared a dividend
of $0.10 per share of common stock payable on March 10, 2005 to shareholders of
record as of the close of business on February 16, 2005. On March 3, 2005, the
Company's board of directors declared a dividend of $0.10 per share of common
stock payable on March 31, 2005 to shareholders of record as of the close of
business on March 16, 2005. This additional first quarter dividend was declared
in lieu of the regular second quarter dividend to address technical restrictions
that might limit the Company's ability to pay a regular dividend during the
second quarter of this year. Due to the limitations imposed under the 1935 Act,
the Company may declare and pay dividends only from earnings in the specific
quarter in which the dividend is paid, absent specific authorization from the
Securities and Exchange Commission. As a result of the seasonal nature of the
Company's utility businesses, the second quarter historically provides the
smallest contribution to the Company's annual earnings, while the first quarter
generally provides a significant contribution to the Company's annual earnings.

128

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES

In accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an
evaluation, under the supervision and with the participation of management,
including our principal executive officer and principal financial officer, of
the effectiveness of our disclosure controls and procedures as of the end of the
period covered by this report. Based on that evaluation, our principal executive
officer and principal financial officer concluded that our disclosure controls
and procedures were effective as of December 31, 2004 to provide assurance that
information required to be disclosed in our reports filed or submitted under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms.

"Management's Annual Report on Internal Control over Financial Reporting"
appears on page 70 of this annual report on Form 10-K. There has been no change
in our internal controls over financial reporting that occurred during the three
months ended December 31, 2004 that has materially affected, or is reasonably
likely to materially affect, our internal controls over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

The information called for by Item 10, to the extent not set forth in
"Executive Officers" in Item 1, is or will be set forth in the definitive proxy
statement relating to CenterPoint Energy's 2005 annual meeting of shareholders
pursuant to SEC Regulation 14A. Such definitive proxy statement relates to a
meeting of shareholders involving the election of directors and the portions
thereof called for by Item 10 are incorporated herein by reference pursuant to
Instruction G to Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

The information called for by Item 11 is or will be set forth in the
definitive proxy statement relating to CenterPoint Energy's 2005 annual meeting
of shareholders pursuant to SEC Regulation 14A. Such definitive proxy statement
relates to a meeting of shareholders involving the election of directors and the
portions thereof called for by Item 11 are incorporated herein by reference
pursuant to Instruction G to Form 10-K.

The information called for by Item 12 is or will be set forth in the
definitive proxy statement relating to CenterPoint Energy's 2005 annual meeting
of shareholders pursuant to SEC Regulation 14A. Such definitive proxy statement
relates to a meeting of shareholders involving the election of directors and the
portions thereof called for by Item 12 are incorporated herein by reference
pursuant to Instruction G to Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information called for by Item 13 is or will be set forth in the
definitive proxy statement relating to CenterPoint Energy's 2005 annual meeting
of shareholders pursuant to SEC Regulation 14A. Such definitive proxy statement
relates to a meeting of shareholders involving the election of directors and the
portions thereof called for by Item 13 are incorporated herein by reference
pursuant to Instruction G to Form 10-K.

129

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information called for by Item 14 is or will be set forth in the
definitive proxy statement relating to CenterPoint Energy's 2005 annual meeting
of shareholders pursuant to SEC Regulation 14A. Such definitive proxy statement
relates to a meeting of shareholders involving the election of directors and the
portions thereof called for by Item 14 are incorporated herein by reference
pursuant to Instruction G to Form 10-K.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1) Financial Statements.

Statements of Consolidated Operations for the Three
Years Ended December 31, 2004......................... 71
Statements of Consolidated Comprehensive Income for the
Three Years Ended December 31, 2004................... 72
Consolidated Balance Sheets at December 31, 2004 and
2003.................................................. 73
Statements of Consolidated Cash Flows for the Three
Years Ended December 31, 2004......................... 74
Statements of Consolidated Shareholders' Equity for the
Three Years Ended December 31, 2004................... 75
Notes to Consolidated Financial Statements............. 76
Report of Independent Registered Public Accounting
Firm.................................................. 68

(a)(2) Financial Statement Schedules for the Three Years Ended December 31,
2004.

The following schedules are omitted because of the absence of the
conditions under which they are required or because the required information is
included in the financial statements:

III, IV and V.

(a)(3) Exhibits.

See Index of Exhibits beginning on page 140, which index also includes the
management contracts or compensatory plans or arrangements required to be filed
as exhibits to this Form 10-K by Item 601(b)(10)(iii) of Regulation S-K.

(1) The condensed parent company financial statements and notes should be
read in conjunction with the consolidated financial statements and notes of
CenterPoint Energy, Inc. (CenterPoint Energy or the Company) appearing in the
Annual Report on Form 10-K. CenterPoint Energy, Inc. is a public utility holding
company that became the parent of Reliant Energy, Incorporated (Reliant Energy)
and its subsidiaries on August 31, 2002 as part of a corporate restructuring of
Reliant Energy (the Restructuring). CenterPoint Energy is a registered public
utility holding company under the 1935 Act. Prior to the Restructuring, Reliant
Energy was a public utility holding company that was exempt from registration
under the 1935 Act. After the Restructuring, an exemption was no longer
available for the corporate structure that the Texas Utility Commission required
CenterPoint Energy to adopt under the Texas electric restructuring law.
CenterPoint Energy did not conduct any activities other than those incident to
its formation until September 1, 2002. Accordingly, statements of operations and
cash flows would not provide meaningful information and have been omitted for
periods prior to September 1, 2002.

(2) As a registered public utility holding company, the Company and its
subsidiaries except Texas Genco Holdings, Inc. (Texas Genco) are subject to a
comprehensive regulatory scheme imposed by the Securities and Exchange
Commission (SEC) in order to protect customers, investors and the public
interest. Although the SEC does not regulate rates and charges under the 1935
Act, it does regulate the structure, financing, lines of business and internal
transactions of public utility holding companies and their system companies. In
order to obtain financing, acquire additional public utility assets or stock, or
engage in other significant transactions, CenterPoint Energy is required to
obtain approval from the SEC under the 1935 Act.

The Company received an order from the SEC under the 1935 Act on June 30,
2003 and supplemental orders thereafter relating to its financing activities and
those of its regulated subsidiaries, as well as other matters. The orders are
effective until June 30, 2005. As of December 31, 2004, the orders generally
permitted the Company and its regulated subsidiaries to issue securities to
refinance indebtedness outstanding at June 30, 2003, and authorized the Company
and its regulated subsidiaries to issue certain incremental external debt
securities and common and preferred stock through June 30, 2005, without prior
authorization from the SEC. Further, the SEC has reserved jurisdiction over the
issuance by the Company and its regulated subsidiaries of certain amounts of
incremental external debt securities, so that the Company is required to obtain
SEC approval prior to issuing those incremental amounts.

The orders require that if the Company or any of its regulated subsidiaries
issues any security that is rated by a nationally recognized statistical rating
organization (NRSRO), the security to be issued must obtain an investment grade
rating from at least one NRSRO and, as a condition to such issuance, all
outstanding rated securities of the issuer and of the Company must be rated
investment grade by at least one NRSRO. The orders also contain certain
requirements for interest rates, maturities, issuance expenses and use of
proceeds. Under the orders, the Company's common equity as a percentage of total
capitalization must be at least 30%. The SEC has acknowledged that prior to the
monetization of Texas Genco and the securitization of the true-up components,
the Company's common equity as a percentage of total capitalization is expected
to remain less than 30%. In addition, after the securitization, the Company's
common equity as a percentage of total capitalization, including securitized
debt, is expected to be less than 30%, which the SEC has permitted for other
companies.

Effective January 1, 2004, CenterPoint Energy established a service company
in order to comply with the 1935 Act. As a result, certain assets and
liabilities of the parent company were transferred to the service company,
primarily property, plant and equipment, pension and other postemployment
benefit assets and obligations and related deferred taxes. These transfers have
been excluded from the Statement of Cash Flows for the year ended December 31,
2004 as they represent non-cash transactions.

(3) On September 30, 2002, the Company distributed to its shareholders 240
million shares of Reliant Energy, Inc. (formerly Reliant Resources, Inc.) (RRI)
common stock, which represented the Company's approximately 83% ownership
interest in RRI, by means of a tax-free spin-off in the form of a dividend.

134

CENTERPOINT ENERGY, INC.

SCHEDULE I -- NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

Holders of CenterPoint Energy common stock on the record date received 0.788603
shares of RRI common stock for each share of CenterPoint Energy stock that they
owned on the record date. The total value of the RRI Distribution, after the
impairment charge discussed below, was $847 million.

As a result of the spin-off of Reliant Resources, the Company recorded a
non-cash loss on disposal of discontinued operations of $4.4 billion in 2002.
This loss represented the excess of the carrying value of the Company's net
investment in RRI over the market value of RRI's common stock.

(4) The Company distributed approximately 19% of the 80 million outstanding
shares of common stock of Texas Genco to its shareholders on January 6, 2003. As
a result of the distribution of Texas Genco common stock, the Company recorded a
pre-tax impairment charge of $399 million, which was reflected as a regulatory
asset in the Consolidated Balance Sheet as of December 31, 2003. This impairment
charge represents the excess of the carrying value of the Company's net
investment in Texas Genco over the market value of Texas Genco's common stock.

In July 2004, the Company announced its agreement to sell its majority
owned subsidiary, Texas Genco, to Texas Genco LLC (formerly known as GC Power
Acquisition LLC), an entity owned in equal parts by affiliates of The Blackstone
Group, Hellman & Friedman LLC, Kohlberg Kravis Roberts & Co. L.P. and Texas
Pacific Group. On December 15, 2004, Texas Genco completed the sale of its
fossil generation assets (coal, lignite and gas-fired plants) to Texas Genco LLC
for $2.813 billion in cash. Following the sale, Texas Genco distributed $2.231
billion in cash to the Company. Texas Genco's principal remaining asset is its
ownership interest in a nuclear generating facility. The final step of the
transaction, the merger of Texas Genco with a subsidiary of Texas Genco LLC in
exchange for an additional cash payment to the Company of $700 million, is
expected to close during the first half of 2005, following receipt of approval
from the Nuclear Regulatory Commission. The Company recorded an after tax loss
of $366 million in 2004 related to the sale of Texas Genco.

(5) On December 15, 2004, the Company permanently reduced its three-year
credit facility to $750 million from $2.34 billion. The credit facility was
composed of a $1.425 billion revolving credit facility (London interbank offered
rate (LIBOR) plus 300 basis points), which has been permanently reduced to $750
million, and a $915 million term loan (LIBOR) plus 350 basis points), which was
repaid and retired on December 15, 2004. As a result of the term loan repayment
and the permanent reduction of the revolving credit facility, the Company
expensed $15 million of unamortized loan costs in the fourth quarter of 2004
that were associated with these facilities.

In March 2005, the Company replaced its $750 million revolving credit
facility with a $1 billion five-year revolving credit facility. Borrowings may
be made under the facility at LIBOR plus 100 basis points based on current
credit ratings. An additional utilization fee of 12.5 basis points applies to
borrowings any time more than 50% of the facility is utilized. Changes in credit
ratings would lower or raise the increment to LIBOR depending on whether ratings
improved or were lowered.

On May 19, 2003, the Company issued $575 million aggregate principal amount
of convertible senior notes due May 15, 2023 with an interest rate of 3.75%.
Holders may convert each of their notes into shares of CenterPoint Energy common
stock, initially at a conversion rate of 86.3558 shares of common stock per
$1,000 principal amount of notes at any time prior to maturity, under the
following circumstances: (1) if the last reported sale price of CenterPoint
Energy common stock for at least 20 trading days during the period of 30
consecutive trading days ending on the last trading day of the previous calendar
quarter is greater than or equal to 120% or, following May 15, 2008, 110% of the
conversion price per share of CenterPoint Energy common stock on such last
trading day, (2) if the notes have been called for redemption, (3) during any
period in which the credit ratings assigned to the notes by both Moody's
Investors Service, Inc. (Moody's) and Standard & Poor's Ratings Services (S&P),
a division of The McGraw-Hill Companies, are lower than Ba2 and BB,
respectively, or the notes are no longer rated by at least one of these ratings
services or their

135

CENTERPOINT ENERGY, INC.

SCHEDULE I -- NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

successors, or (4) upon the occurrence of specified corporate transactions,
including the distribution to all holders of CenterPoint Energy common stock of
certain rights entitling them to purchase shares of CenterPoint Energy common
stock at less than the last reported sale price of a share of CenterPoint Energy
common stock on the trading day prior to the declaration date of the
distribution or the distribution to all holders of CenterPoint Energy common
stock of the Company's assets, debt securities or certain rights to purchase the
Company's securities, which distribution has a per share value exceeding 15% of
the last reported sale price of a share of CenterPoint Energy common stock on
the trading day immediately preceding the declaration date for such
distribution. The convertible senior notes also have a contingent interest
feature requiring contingent interest to be paid to holders of notes commencing
on or after May 15, 2008, in the event that the average trading price of a note
for the applicable five trading day period equals or exceeds 120% of the
principal amount of the note as of the day immediately preceding the first day
of the applicable six-month interest period. For any six-month period,
contingent interest will be equal to 0.25% of the average trading price of the
note for the applicable five-trading-day period.

In March 2005, the Company filed a registration statement relating to an
offer to exchange its 3.75% convertible senior notes due 2023 for a new series
of 3.75% convertible senior notes due 2023. This registration statement has not
yet been declared effective by the SEC. The Company expects to conduct the
exchange offer in response to the guidance set forth in Emerging Issues Task
Force No. 04-8, "Accounting Issues Related to Certain Features of Contingently
Convertible Debt and the Effect on Diluted Earnings Per Share". Under that
guidance, because settlement of the principal portion of new notes will be made
in cash rather than stock, exchanging new notes for old notes will allow the
Company to exclude the portion of the conversion value of the new notes
attributable to their principal amount from its computation of diluted earnings
per share from continuing operations.

On December 17, 2003, the Company issued $255 million aggregate principal
amount of convertible senior notes due January 15, 2024 with an interest rate of
2.875%. Holders may convert each of their notes into shares of CenterPoint
Energy common stock, initially at a conversion rate of 78.064 shares of common
stock per $1,000 principal amount of notes at any time prior to maturity, under
the following circumstances: (1) if the last reported sale price of CenterPoint
Energy common stock for at least 20 trading days during the period of 30
consecutive trading days ending on the last trading day of the previous calendar
quarter is greater than or equal to 120% of the conversion price per share of
CenterPoint Energy common stock on such last trading day, (2) if the notes have
been called for redemption, (3) during any period in which the credit ratings
assigned to the notes by both Moody's and S&P are lower than Ba2 and BB,
respectively, or the notes are no longer rated by at least one of these ratings
services or their successors, or (4) upon the occurrence of specified corporate
transactions, including the distribution to all holders of CenterPoint Energy
common stock of certain rights entitling them to purchase shares of CenterPoint
Energy common stock at less than the last reported sale price of a share of
CenterPoint Energy common stock on the trading day prior to the declaration date
of the distribution or the distribution to all holders of CenterPoint Energy
common stock of the Company's assets, debt securities or certain rights to
purchase the Company's securities, which distribution has a per share value
exceeding 15% of the last reported sale price of a share of CenterPoint Energy
common stock on the trading day immediately preceding the declaration date for
such distribution. Under the original terms of these convertible senior notes,
CenterPoint Energy could elect to satisfy part or all of its conversion
obligation by delivering cash in lieu of shares of CenterPoint Energy. On
December 13, 2004, the Company entered into a supplemental indenture with
respect to these convertible senior notes in order to eliminate its right to
settle the conversion of the notes solely in shares of its common stock. The
convertible senior notes also have a contingent interest feature requiring
contingent interest to be paid to holders of notes commencing on or after
January 15, 2007, in the event that the average trading price of a note for the
applicable five-trading-day period equals or exceeds 120% of the principal
amount of the note as of the day immediately preceding the first day of the
applicable six-month interest period. For any six-month period, contingent
interest will be equal to 0.25% of the average trading price of the note for the
applicable five-trading-day period.

136

CENTERPOINT ENERGY, INC.

SCHEDULE I -- NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

(6) On December 30, 2004, the Board of Directors of the Company adopted a
plan for an accounting reorganization of the Company, to be effective as of
January 1, 2005. This plan was adopted in order to eliminate the accumulated
retained earnings deficit that exists.

The plan adopted by the Company required: (1) a report to be presented to
and reviewed by the Company's Board of Directors on or before February 28, 2005
as to the completion of the valuation analysis of the accounting reorganization
and the effects of the accounting reorganization on the Company's financial
statements, (2) a determination that the accounting reorganization is in
accordance with accounting principles generally accepted in the United States,
and (3) that there be no determination by the Company's Board of Directors on or
before February 28, 2005 that the accounting reorganization is inconsistent with
the Company's regulatory obligations. The Company is continuing to work to
complete the valuation analysis and the effects on the Company's financial
statements of the accounting reorganization, and on February 23, 2005, the
Company's Board of Directors extended until May 10, 2005 the time for making the
determination described in (3) of the preceding sentence.

An accounting reorganization, sometimes called a "quasi-reorganization,"
allows a company to extinguish a negative retained earnings balance. It involves
restating a company's assets and its liabilities to their fair values. The
negative balance in the retained earnings account is then brought to zero
through a reduction in the other capital accounts, giving the company a "fresh
start" with a zero balance in retained earnings. As of December 31, 2004, the
Company had an accumulated retained earnings deficit of approximately $1.7
billion. That deficit stemmed from the accounting effects of (1) the Company's
distribution of its ownership interest in RRI to its shareholders in September
2002, (2) the extraordinary loss recorded in connection with the Texas Utility
Commission's order related to the 2004 True-Up Proceeding (defined below) and
(3) the loss on discontinued operations that was recorded in connection with the
Company's sale of Texas Genco. Those events stemmed from the Company's response
to the Texas electric restructuring law. In addition to eliminating the
accumulated deficit in retained earnings and restating assets and liabilities to
fair value, if a quasi-reorganization were implemented, the Company and
CenterPoint Houston would be required to implement any accounting standards that
have been issued but not yet adopted.

The Company is seeking to eliminate the negative retained earnings balance
because restrictions contained in the 1935 Act require registered public utility
holding companies, like the Company, to obtain express authorization from the
SEC to pay dividends when current or retained earnings are insufficient to do
so. Eliminating the negative retained earnings balance will permit current
earnings not utilized to pay dividends to more quickly build up a retained
earnings balance. Under 1935 Act regulations, the Company could pay dividends
out of this balance during periods when current earnings may not be adequate to
do so.

In addition, the Company has undertaken an obligation under the 1935 Act to
achieve a minimum ratio of common equity to total capitalization of thirty
percent, which, depending on the results of the restatement of assets and
liabilities under the accounting reorganization, could be affected by, and will
be taken into consideration by the Board of Directors in evaluating the effects
of, the accounting reorganization. The Company will seek such authority as may
be required under the 1935 Act in connection with the quasi-reorganization.

(1) Charges to other accounts represent changes in presentation to reflect state
tax attributes net of federal tax benefit as well as to reflect amounts that
were netted against related attribute balances in prior years.

(2) Deductions from reserves represent losses or expenses for which the
respective reserves were created. In the case of the uncollectible accounts
reserve, such deductions are net of recoveries of amounts previously written
off.

138

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Houston, the State of Texas, on the 16th day of March, 2005.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 16, 2005.

Exhibits included with this report are designated by a cross (+); all
exhibits not so designated are incorporated herein by reference to a prior
filing as indicated. Exhibits designated by an asterisk (*) are management
contracts or compensatory plans or arrangements required to be filed as exhibits
to this Form 10-K by Item 601(b)(10)(iii) of Regulation S-K. CenterPoint Energy
has not filed the exhibits and schedules to Exhibit 2(b). CenterPoint Energy
hereby agrees to furnish supplementally a copy of any schedule omitted from
Exhibit 2(b) to the SEC upon request.

SEC FILE OR
EXHIBIT REGISTRATION EXHIBIT
NUMBER DESCRIPTION REPORT OR REGISTRATION STATEMENT NUMBER REFERENCE
------- ----------- -------------------------------- ------------ ---------
4(c) -- Contribution and CenterPoint Energy's Form 10-K 1-31447 4.3
Registration Agreement dated for the year ended December 31,
December 18, 2001 among 2001
Reliant Energy, CenterPoint
Energy and the Northern
Trust Company, trustee under
the Reliant Energy,
Incorporated Master
Retirement Trust
4(d)(1) -- Mortgage and Deed of Trust, HL&P's Form S-7 filed on August 2-59748 2(b)
dated November 1, 1944 25, 1977
between Houston Lighting and
Power Company ("HL&P") and
Chase Bank of Texas,
National Association
(formerly, South Texas
Commercial National Bank of
Houston), as Trustee, as
amended and supplemented by
20 Supplemental Indentures
thereto
4(d)(2) -- Twenty-First through HL&P's Form 10-K for the year 1-3187 4(a)(2)
Fiftieth Supplemental ended December 31, 1989
Indentures to Exhibit
4(d)(1)
4(d)(3) -- Fifty-First Supplemental HL&P's Form 10-Q for the quarter 1-3187 4(a)
Indenture to Exhibit 4(d)(1) ended June 30, 1991
dated as of March 25, 1991
4(d)(4) -- Fifty-Second through Fifty- HL&P's Form 10-Q for the quarter 1-3187 4
Fifth Supplemental ended March 31, 1992
Indentures to Exhibit
4(d)(1) each dated as of
March 1, 1992
4(d)(5) -- Fifty-Sixth and HL&P's Form 10-Q for the quarter 1-3187 4
Fifty-Seventh Supplemental ended September 30, 1992
Indentures to Exhibit
4(d)(1) each dated as of
October 1, 1992
4(d)(6) -- Fifty-Eighth and Fifty-Ninth HL&P's Form 10-Q for the quarter 1-3187 4
Supplemental Indentures to ended March 31, 1993
Exhibit 4(d)(1) each dated
as of March 1, 1993
4(d)(7) -- Sixtieth Supplemental HL&P's Form 10-Q for the quarter 1-3187 4
Indenture to Exhibit 4(d)(1) ended June 30, 1993
dated as of July 1, 1993
4(d)(8) -- Sixty-First through HL&P's Form 10-K for the year 1-3187 4(a)(8)
Sixty-Third Supplemental ended December 31, 1993
Indentures to Exhibit
4(d)(1) each dated as of
December 1, 1993
4(d)(9) -- Sixty-Fourth and Sixty-Fifth HL&P's Form 10-K for the year 1-3187 4(a)(9)
Supplemental Indentures to ended December 31, 1995
Exhibit 4(d)(1) each dated
as of July 1, 1995

141

SEC FILE OR
EXHIBIT REGISTRATION EXHIBIT
NUMBER DESCRIPTION REPORT OR REGISTRATION STATEMENT NUMBER REFERENCE
------- ----------- -------------------------------- ------------ ---------
4(e)(1) -- General Mortgage Indenture, CenterPoint Houston's Form 10-Q 1-3187 4(j)(1)
dated as of October 10, for the quarter ended September
2002, between CenterPoint 30, 2002
Energy Houston Electric, LLC
and JPMorgan Chase Bank, as
Trustee
4(e)(2) -- First Supplemental Indenture CenterPoint Houston's Form 10-Q 1-3187 4(j)(2)
to Exhibit 4(e)(1), dated as for the quarter ended September
of October 10, 2002 30, 2002
4(e)(3) -- Second Supplemental CenterPoint Houston's Form 10-Q 1-3187 4(j)(3)
Indenture to Exhibit for the quarter ended September
4(e)(1), dated as of October 30, 2002
10, 2002
4(e)(4) -- Third Supplemental Indenture CenterPoint Houston's Form 10-Q 1-3187 4(j)(4)
to Exhibit 4(e)(1), dated as for the quarter ended September
of October 10, 2002 30, 2002
4(e)(5) -- Fourth Supplemental CenterPoint Houston's Form 10-Q 1-3187 4(j)(5)
Indenture to Exhibit for the quarter ended September
4(e)(1), dated as of October 30, 2002
10, 2002
4(e)(6) -- Fifth Supplemental Indenture CenterPoint Houston's Form 10-Q 1-3187 4(j)(6)
to Exhibit 4(e)(1), dated as for the quarter ended September
of October 10, 2002 30, 2002
4(e)(7) -- Sixth Supplemental Indenture CenterPoint Houston's Form 10-Q 1-3187 4(j)(7)
to Exhibit 4(e)(1), dated as for the quarter ended September
of October 10, 2002 30, 2002
4(e)(8) -- Seventh Supplemental CenterPoint Houston's Form 10-Q 1-3187 4(j)(8)
Indenture to Exhibit for the quarter ended September
4(e)(1), dated as of October 30, 2002
10, 2002
4(e)(9) -- Eighth Supplemental CenterPoint Houston's Form 10-Q 1-3187 4(j)(9)
Indenture to Exhibit for the quarter ended September
4(e)(1), dated as of October 30, 2002
10, 2002
4(e)(10) -- Officer's Certificates dated CenterPoint Energy's Form 10-K 1-31447 4(e)(10)
October 10, 2002 setting for the year ended December 31,
forth the form, terms and 2003
provisions of the First
through Eighth Series of
General Mortgage Bonds
4(e)(11) -- Ninth Supplemental Indenture CenterPoint Energy's Form 10-K 1-31447 4(e)(10)
to Exhibit 4(e)(1), dated as for the year ended December 31,
of November 12, 2002 2002
4(e)(12) -- Officer's Certificate dated CenterPoint Energy's Form 10-K 1-31447 4(e)(12)
November 12, 2002 setting for the year ended December 31,
forth the form, terms and 2003
provisions of the Ninth
Series of General Mortgage
Bonds
4(e)(13) -- Tenth Supplemental Indenture CenterPoint Energy's Form 8-K 1-31447 4.1
to Exhibit 4(e)(1), dated as dated March 13, 2003
of March 18, 2003

SEC FILE OR
EXHIBIT REGISTRATION EXHIBIT
NUMBER DESCRIPTION REPORT OR REGISTRATION STATEMENT NUMBER REFERENCE
------- ----------- -------------------------------- ------------ ---------
4(g)(6) -- Supplemental Indenture No. 5 CenterPoint Energy's Form 8-K 1-31447 4.1
to Exhibit 4(g)(1), dated as dated December 9, 2004
of December 13, 2004, as
supplemented by Exhibit
4(g)(5), relating to the
issuance of CenterPoint
Energy's 2.875% Convertible
Senior Notes dues 2024
4(h) -- Supplemental Indenture No. 2 CenterPoint Energy's Form 8-K12B 1-31447 4(e)
dated as of August 31, 2002, dated August 31, 2002
among CenterPoint Energy,
Reliant Energy and JPMorgan
Chase Bank (supplementing
the Subordinated Indenture
dated as of September 1,
1999 under which Reliant
Energy's 2% Zero-Premium
Exchangeable Subordinated
Notes Due 2029 were issued)
4(i) -- Supplemental Indenture No. 3 CenterPoint Energy's Form 8-K12B 1-31447 4(g)
dated as of August 31, 2002 dated August 31, 2002
among CenterPoint Energy,
REI and The Bank of New York
(supplementing the Junior
Subordinated Indenture dated
as of February 1, 1997 under
which REI's Junior
Subordinated Debentures
related to 8.257% capital
securities issued by HL&P
Capital Trust II were
issued)
4(j) -- Third Supplemental Indenture CenterPoint Energy's Form 8-K12B 1-31447 4(h)
dated as of August 31, 2002 dated August 31, 2002
among CenterPoint Energy,
Reliant Energy, RERC and The
Bank of New York
(supplementing the Indenture
dated as of June 15, 1996
under which RERC's 6.25%
Convertible Junior
Subordinated Debentures were
issued)
4(k) -- Second Supplemental CenterPoint Energy's Form 8-K12B 1-31447 4(i)
Indenture dated as of August dated August 31, 2002
31, 2002 among CenterPoint
Energy, Reliant Energy, RERC
and JPMorgan Chase Bank
(supplementing the Indenture
dated as of March 1, 1987
under which RERC's 6%
Convertible Subordinated
Debentures due 2012 were
issued)

145

SEC FILE OR
EXHIBIT REGISTRATION EXHIBIT
NUMBER DESCRIPTION REPORT OR REGISTRATION STATEMENT NUMBER REFERENCE
------- ----------- -------------------------------- ------------ ---------
4(l) -- Assignment and Assumption CenterPoint Energy's Form 8-K12B 1-31447 4(j)
Agreement for the Guarantee dated August 31, 2002
Agreements dated as of
August 31, 2002 between
CenterPoint Energy and
Reliant Energy (relating to
the Guarantee Agreement
dated as of February 4, 1997
between Reliant Energy and
The Bank of New York
providing for the guaranty
of certain amounts relating
to the 8.257% capital
securities issued by HL&P
Capital Trust II)
4(m) -- Assignment and Assumption CenterPoint Energy's Form 8-K12B 1-31447 4(l)
Agreement for the Expense dated August 31, 2002
and Liability Agreements and
the Trust Agreements dated
as of August 31, 2002
between CenterPoint Energy
and Reliant Energy (relating
to (i) the Agreement as to
Expenses and Liabilities
dated as of February 4, 1997
between Reliant Energy and
HL&P Capital Trust II and
(ii) HL&P Capital Trust II's
Amended and Restated Trust
Agreement dated February 4,
1997
4(n)(1) -- $1,310,000,000 Credit CenterPoint Energy's Form 10-K 1-31447 4(g)(1)
Agreement, dated as of for the year ended December 31,
November 12, 2002, among 2002
CenterPoint Houston and the
banks named therein
4(n)(2) -- First Amendment to Exhibit CenterPoint Energy's Form 10-Q 1-31447 10.7
4(n)(1), dated as of for the quarter ended September
September 3, 2003 30, 2003
4(n)(3) -- Pledge Agreement, dated as CenterPoint Energy's Form 10-K 1-31447 4(g)(2)
of November 12, 2002 for the year ended December 31,
executed in connection with 2002
Exhibit 4(n)(1)
4(o) -- $1,000,000,000 Credit CenterPoint Energy's Form 8-K 1-31447 4.1
Agreement dated as of March dated March 7, 2005
7, 2005 among CenterPoint
Energy and the banks named
therein

Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, CenterPoint Energy
has not filed as exhibits to this Form 10-K certain long-term debt instruments,
including indentures, under which the total amount of securities authorized does
not exceed 10% of the total assets of CenterPoint Energy and its subsidiaries on
a consolidated basis. CenterPoint Energy hereby agrees to furnish a copy of any
such instrument to the SEC upon request.

SEC FILE OR
EXHIBIT REGISTRATION EXHIBIT
NUMBER DESCRIPTION REPORT OR REGISTRATION STATEMENT NUMBER REFERENCE
------- ----------- -------------------------------- ------------ ---------
*10(a)(1) -- Executive Benefit Plan of HI's Form 10-Q for the quarter 1-7629 10(a)(1),
Houston Industries ended March 31, 1987 10(a)(2),
Incorporated ("HI") and and
First and Second 10(a)(3)
Amendments thereto
effective as of June 1,
1982, July 1, 1984, and
May 7, 1986, respectively
*10(a)(2) -- Third Amendment dated Reliant Energy's Form 10-K for 1-3187 10(a)(2)
September 17, 1999 to the year ended December 31, 2000
Exhibit 10(a)(1)
*10(a)(3) -- CenterPoint Energy CenterPoint Energy's Form 10-Q 1-31447 10.4
Executive Benefits Plan, for the quarter ended September
as amended and restated 30, 2003
effective June 18, 2003
*10(b)(1) -- Executive Incentive HI's Form 10-K for the year 1-7629 10(b)
Compensation Plan of HI ended December 31, 1991
effective as of January 1,
1982
*10(b)(2) -- First Amendment to Exhibit HI's Form 10-Q for the quarter 1-7629 10(a)
10(b)(1) effective as of ended March 31, 1992
March 30, 1992
*10(b)(3) -- Second Amendment to HI's Form 10-K for the year 1-7629 10(b)
Exhibit 10(b)(1) effective ended December 31, 1992
as of November 4, 1992
*10(b)(4) -- Third Amendment to Exhibit HI's Form 10-K for the year 1-7629 10(b)(4)
10(b)(1) effective as of ended December 31, 1994
September 7, 1994
*10(b)(5) -- Fourth Amendment to HI's Form 10-K for the year 1-3187 10(b)(5)
Exhibit 10(b)(1) effective ended December 31, 1997
as of August 6, 1997
*10(c)(1) -- Executive Incentive HI's Form 10-Q for the quarter 1-7629 10(b)(1)
Compensation Plan of HI ended March 31, 1987
effective as of January 1,
1985
*10(c)(2) -- First Amendment to Exhibit HI's Form 10-K for the year 1-7629 10(b)(3)
10(c)(1) effective as of ended December 31, 1988
January 1, 1985
*10(c)(3) -- Second Amendment to HI's Form 10-K for the year 1-7629 10(c)(3)
Exhibit 10(c)(1) effective ended December 31, 1991
as of January 1, 1985
*10(c)(4) -- Third Amendment to Exhibit HI's Form 10-Q for the quarter 1-7629 10(b)
10(c)(1) effective as of ended March 31, 1992
March 30, 1992

148

SEC FILE OR
EXHIBIT REGISTRATION EXHIBIT
NUMBER DESCRIPTION REPORT OR REGISTRATION STATEMENT NUMBER REFERENCE
------- ----------- -------------------------------- ------------ ---------
*10(c)(5) -- Fourth Amendment to HI's Form 10-K for the year 1-7629 10(c)(5)
Exhibit 10(c)(1) effective ended December 31, 1992
as of November 4, 1992
*10(c)(6) -- Fifth Amendment to Exhibit HI's Form 10-K for the year 1-7629 10(c)(6)
10(c)(1) effective as of ended December 31, 1994
September 7, 1994
*10(c)(7) -- Sixth Amendment to Exhibit HI's Form 10-K for the year 1-3187 10(c)(7)
10(c)(1) effective as of ended December 31, 1997
August 6, 1997
*10(d) -- Executive Incentive HI's Form 10-Q for the quarter 1-7629 10(b)(2)
Compensation Plan of HL&P ended March 31, 1987
effective as of January 1,
1985
*10(e)(1) -- Executive Incentive HI's Form 10-Q for the quarter 1-7629 10(b)
Compensation Plan of HI as ended June 30, 1989
amended and restated on
January 1, 1989
*10(e)(2) -- First Amendment to Exhibit HI's Form 10-K for the year 1-7629 10(e)(2)
10(e)(1) effective as of ended December 31, 1991
January 1, 1989
*10(e)(3) -- Second Amendment to HI's Form 10-Q for the quarter 1-7629 10(c)
Exhibit 10(e)(1) effective ended March 31, 1992
as of March 30, 1992
*10(e)(4) -- Third Amendment to Exhibit HI's Form 10-K for the year 1-7629 10(c)(4)
10(e)(1) effective as of ended December 31, 1992
November 4, 1992
*10(e)(5) -- Fourth Amendment to HI's Form 10-K for the year 1-7629 10(e)(5)
Exhibit 10(e)(1) effective ended December 31, 1994
as of September 7, 1994
*10(f)(1) -- Executive Incentive HI's Form 10-K for the year 1-7629 10(b)
Compensation Plan of HI as ended December 31, 1990
amended and restated on
January 1, 1991
*10(f)(2) -- First Amendment to Exhibit HI's Form 10-K for the year 1-7629 10(f)(2)
10(f)(1) effective as of ended December 31, 1991
January 1, 1991
*10(f)(3) -- Second Amendment to HI's Form 10-Q for the quarter 1-7629 10(d)
Exhibit 10(f)(1) effective ended March 31, 1992
as of March 30, 1992
*10(f)(4) -- Third Amendment to Exhibit HI's Form 10-K for the year 1-7629 10(f)(4)
10(f)(1) effective as of ended December 31, 1992
November 4, 1992
*10(f)(5) -- Fourth Amendment to HI's Form 10-K for the year 1-7629 10(f)(5)
Exhibit 10(f)(1) effective ended December 31, 1992
as of January 1, 1993
*10(f)(6) -- Fifth Amendment to Exhibit HI's Form 10-K for the year 1-7629 10(f)(6)
10(f)(1) effective in ended December 31, 1994
part, January 1, 1995, and
in part, September 7, 1994

149

SEC FILE OR
EXHIBIT REGISTRATION EXHIBIT
NUMBER DESCRIPTION REPORT OR REGISTRATION STATEMENT NUMBER REFERENCE
------- ----------- -------------------------------- ------------ ---------
*10(f)(7) -- Sixth Amendment to Exhibit HI's Form 10-Q for the quarter 1-7629 10(a)
10(f)(1) effective as of ended June 30, 1995
August 1, 1995
*10(f)(8) -- Seventh Amendment to HI's Form 10-Q for the quarter 1-7629 10(a)
Exhibit 10(f)(1) effective ended June 30, 1996
as of January 1, 1996
*10(f)(9) -- Eighth Amendment to HI's Form 10-Q for the quarter 1-7629 10(a)
Exhibit 10(f)(1) effective ended June 30, 1997
as of January 1, 1997
*10(f)(10) -- Ninth Amendment to Exhibit HI's Form 10-K for the year 1-3187 10(f)(10)
10(f)(1) effective in ended December 31, 1997
part, January 1, 1997, and
in part, January 1, 1998
*10(g) -- Benefit Restoration Plan HI's Form 10-Q for the quarter 1-7629 10(c)
of HI effective as of June ended March 31, 1987
1, 1985
*10(h) -- Benefit Restoration Plan HI's Form 10-K for the year 1-7629 10(g)(2)
of HI as amended and ended December 31, 1991
restated effective as of
January 1, 1988
*10(i)(1) -- Benefit Restoration Plan HI's Form 10-K for the year 1-7629 10(g)(3)
of HI, as amended and ended December 31, 1991
restated effective as of
July 1, 1991
*10(i)(2) -- First Amendment to Exhibit HI's Form 10-K for the year 1-3187 10(i)(2)
10(i)(1) effective in ended December 31, 1997
part, August 6, 1997, in
part, September 3, 1997,
and in part, October 1,
1997
*10(j)(1) -- Deferred Compensation Plan HI's Form 10-Q for the quarter 1-7629 10(d)
of HI effective as of ended March 31, 1987
September 1, 1985
*10(j)(2) -- First Amendment to Exhibit HI's Form 10-K for the year 1-7629 10(d)(2)
10(j)(1) effective as of ended December 31, 1990
September 1, 1985
*10(j)(3) -- Second Amendment to HI's Form 10-Q for the quarter 1-7629 10(e)
Exhibit 10(j)(1) effective ended March 31, 1992
as of March 30, 1992
*10(j)(4) -- Third Amendment to Exhibit HI's Form 10-K for the year 1-7629 10(h)(4)
10(j)(1) effective as of ended December 31, 1993
June 2, 1993
*10(j)(5) -- Fourth Amendment to HI's Form 10-K for the year 1-7629 10(h)(5)
Exhibit 10(j)(1) effective ended December 31, 1994
as of September 7, 1994
*10(j)(6) -- Fifth Amendment to Exhibit HI's Form 10-Q for the quarter 1-7629 10(d)
10(j)(1) effective as of ended June 30, 1995
August 1, 1995
*10(j)(7) -- Sixth Amendment to Exhibit HI's Form 10-Q for the quarter 1-7629 10(b)
10(j)(1) effective as of ended June 30, 1995
December 1, 1995

150

SEC FILE OR
EXHIBIT REGISTRATION EXHIBIT
NUMBER DESCRIPTION REPORT OR REGISTRATION STATEMENT NUMBER REFERENCE
------- ----------- -------------------------------- ------------ ---------
*10(j)(8) -- Seventh Amendment to HI's Form 10-Q for the quarter 1-7629 10(b)
Exhibit 10(j)(1) effective ended June 30, 1997
as of January 1, 1997
*10(j)(9) -- Eighth Amendment to HI's Form 10-K for the year 1-3187 10(j)(9)
Exhibit 10(j)(1) effective ended December 31, 1997
as of October 1, 1997
*10(j)(10) -- Ninth Amendment to Exhibit HI's Form 10-K for the year 1-3187 10(j)(10)
10(j)(1) effective as of ended December 31, 1997
September 3, 1997
*10(j)(11) -- Tenth Amendment to Exhibit CenterPoint Energy's Form 10-K 1-31447 10(j)(11)
10(j)(1) effective as of for the year ended December 31,
January 1, 2001 2002
*10(j)(12) -- Eleventh Amendment to CenterPoint Energy's Form 10-K 1-31447 10(j)(12)
Exhibit 10(j)(1) effective for the year ended December 31,
as of August 31, 2002 2002
*10(j)(13) -- CenterPoint Energy 1985 CenterPoint Energy's Form 10-Q 1-31447 10.1
Deferred Compensation for the quarter ended September
Plan, as amended and 30, 2003
restated effective January
1, 2003
*10(k)(1) -- Deferred Compensation Plan HI's Form 10-Q for the quarter 1-7629 10(a)
of HI effective as of ended June 30, 1989
January 1, 1989
*10(k)(2) -- First Amendment to Exhibit HI's Form 10-K for the year 1-7629 10(e)(3)
10(k)(1) effective as of ended December 31, 1989
January 1, 1989
*10(k)(3) -- Second Amendment to HI's Form 10-Q for the quarter 1-7629 10(f)
Exhibit 10(k)(1) effective ended March 31, 1992
as of March 30, 1992
*10(k)(4) -- Third Amendment to Exhibit HI's Form 10-K for the year 1-7629 10(i)(4)
10(k)(1) effective as of ended December 31, 1993
June 2, 1993
*10(k)(5) -- Fourth Amendment to HI's Form 10-K for the year 1-7629 10(i)(5)
Exhibit 10(k)(1) effective ended December 31, 1994
as of September 7, 1994
*10(k)(6) -- Fifth Amendment to Exhibit HI's Form 10-Q for the quarter 1-7629 10(c)
10(k)(1) effective as of ended June 30, 1995
August 1, 1995
*10(k)(7) -- Sixth Amendment to Exhibit HI's Form 10-Q for the quarter 1-7629 10(c)
10(k)(1) effective ended June 30, 1995
December 1, 1995
*10(k)(8) -- Seventh Amendment to HI's Form 10-Q for the quarter 1-7629 10(c)
Exhibit 10(k)(1) effective ended June 30, 1997
as of January 1, 1997
*10(k)(9) -- Eighth Amendment to HI's Form 10-K for the year 1-3187 10(k)(9)
Exhibit 10(k)(1) effective ended December 31, 1997
in part October 1, 1997
and in part January 1,
1998
*10(k)(10) -- Ninth Amendment to Exhibit HI's Form 10-K for the year 1-3187 10(k)(10)
10(k)(1) effective as of ended December 31, 1997
September 3, 1997

151

SEC FILE OR
EXHIBIT REGISTRATION EXHIBIT
NUMBER DESCRIPTION REPORT OR REGISTRATION STATEMENT NUMBER REFERENCE
------- ----------- -------------------------------- ------------ ---------
*10(k)(11) -- Tenth Amendment to Exhibit CenterPoint Energy's Form 10-K 1-31447 10(k)(11)
10(k)(1) effective as of for the year ended December 31,
January 1, 2001 2002
*10(k)(12) -- Eleventh Amendment to CenterPoint Energy's Form 10-K 1-31447 10(k)(12)
Exhibit 10(k)(1) effective for the year ended December 31,
as of August 31, 2002 2002
*10(l)(1) -- Deferred Compensation Plan HI's Form 10-K for the year 1-7629 10(d)(3)
of HI effective as of ended December 31, 1990
January 1, 1991
*10(l)(2) -- First Amendment to Exhibit HI's Form 10-K for the year 1-7629 10(j)(2)
10(l)(1) effective as of ended December 31, 1991
January 1, 1991
*10(l)(3) -- Second Amendment to HI's Form 10-Q for the quarter 1-7629 10(g)
Exhibit 10(l)(1) effective ended March 31, 1992
as of March 30, 1992
*10(l)(4) -- Third Amendment to Exhibit HI's Form 10-K for the year 1-7629 10(j)(4)
10(l)(1) effective as of ended December 31, 1993
June 2, 1993
*10(l)(5) -- Fourth Amendment to HI's Form 10-K for the year 1-7629 10(j)(5)
Exhibit 10(l)(1) effective ended December 31, 1993
as of December 1, 1993
*10(l)(6) -- Fifth Amendment to Exhibit HI's Form 10-K for the year 1-7629 10(j)(6)
10(l)(1) effective as of ended December 31, 1994
September 7, 1994
*10(l)(7) -- Sixth Amendment to Exhibit HI's Form 10-Q for the quarter 1-7629 10(b)
10(l)(1) effective as of ended June 30, 1995
August 1, 1995
*10(l)(8) -- Seventh Amendment to HI's Form 10-Q for the quarter 1-7629 10(d)
Exhibit 10(l)(1) effective ended June 30, 1996
as of December 1, 1995
*10(l)(9) -- Eighth Amendment to HI's Form 10-Q for the quarter 1-7629 10(d)
Exhibit 10(l)(1) effective ended June 30, 1997
as of January 1, 1997
*10(l)(10) -- Ninth Amendment to Exhibit HI's Form 10-K for the year 1-3187 10(l)(10)
10(l)(1) effective in part ended December 31, 1997
August 6, 1997, in part
October 1, 1997, and in
part January 1, 1998
*10(l)(11) -- Tenth Amendment to Exhibit HI's Form 10-K for the year 1-3187 10(i)(11)
10(l)(1) effective as of ended December 31, 1997
September 3, 1997
*10(l)(12) -- Eleventh Amendment to CenterPoint Energy's Form 10-K 1-31447 10(l)(12)
Exhibit 10(l)(1) effective for the year ended December 31,
as of January 1, 2001 2002
*10(l)(13) -- Twelfth Amendment to CenterPoint Energy's Form 10-K 1-31447 10(l)(13)
Exhibit 10(l)(1) effective for the year ended December 31,
as of August 31, 2002 2002
*10(m)(1) -- Long-Term Incentive HI's Form 10-Q for the quarter 1-7629 10(c)
Compensation Plan of HI ended June 30, 1989
effective as of January 1,
1989

152

SEC FILE OR
EXHIBIT REGISTRATION EXHIBIT
NUMBER DESCRIPTION REPORT OR REGISTRATION STATEMENT NUMBER REFERENCE
------- ----------- -------------------------------- ------------ ---------
*10(m)(2) -- First Amendment to Exhibit HI's Form 10-K for the year 1-7629 10(f)(2)
10(m)(1) effective as of ended December 31, 1989
January 1, 1990
*10(m)(3) -- Second Amendment to HI's Form 10-K for the year 1-7629 10(k)(3)
Exhibit 10(m)(1) effective ended December 31, 1992
as of December 22, 1992
*10(m)(4) -- Third Amendment to Exhibit HI's Form 10-K for the year 1-3187 10(m)(4)
10(m)(1) effective as of ended December 31, 1997
August 6, 1997
*10(m)(5) -- Fourth Amendment to Reliant Energy's Form 10-Q for 1-3187 10.4
Exhibit 10(m)(1) effective the quarter ended June 30, 2002
as of January 1, 2001
*10(n)(1) -- Form of stock option HI's Form 10-Q for the quarter 1-7629 10(h)
agreement for ended March 31, 1992
non-qualified stock
options granted under
Exhibit 10(m)(1)
*10(n)(2) -- Forms of restricted stock HI's Form 10-Q for the quarter 1-7629 10(i)
agreement for restricted ended March 31, 1992
stock granted under
Exhibit 10(m)(1)
*10(o)(1) -- 1994 Long-Term Incentive HI's Form 10-K for the year 1-7629 10(n)(1)
Compensation Plan of HI ended December 31, 1993
effective as of January 1,
1994
*10(o)(2) -- Form of stock option HI's Form 10-K for the year 1-7629 10(n)(2)
agreement for ended December 31, 1993
non-qualified stock
options granted under
Exhibit 10(o)(1)
*10(o)(3) -- First Amendment to Exhibit HI's Form 10-Q for the quarter 1-7629 10(e)
10(o)(1) effective as of ended June 30, 1997
May 9, 1997
*10(o)(4) -- Second Amendment to HI's Form 10-K for the year 1-3187 10(p)(4)
Exhibit 10(o)(1) effective ended December 31, 1997
as of August 6, 1997
*10(o)(5) -- Third Amendment to Exhibit HI's Form 10-K for the year 1-3187 10(p)(5)
10(o)(1) effective as of ended December 31, 1998
January 1, 1998
*10(o)(6) -- Reliant Energy 1994 Long- Reliant Energy's Form 10-Q for 1-3187 10.6
Term Incentive the quarter ended June 30, 2002
Compensation Plan, as
amended and restated
effective January 1, 2001
*10(o)(7) -- First Amendment to Exhibit CenterPoint Energy's Form 10-K 1-31447 10(p)(7)
10(o)(6), effective for the year ended December 31,
December 1, 2003 2003
*10(o)(8) -- Form of Non-Qualified CenterPoint Energy's Form 8-K 1-31447 10.6
Stock Option Award Notice dated January 25, 2005
under Exhibit 10(o)(6)
*10(p)(1) -- Savings Restoration Plan HI's Form 10-K for the year 1-7629 10(f)
of HI effective as of ended December 31, 1990
January 1, 1991

153

SEC FILE OR
EXHIBIT REGISTRATION EXHIBIT
NUMBER DESCRIPTION REPORT OR REGISTRATION STATEMENT NUMBER REFERENCE
------- ----------- -------------------------------- ------------ ---------
*10(p)(2) -- First Amendment to Exhibit HI's Form 10-K for the year 1-7629 10(l)(2)
10(p)(1) effective as of ended December 31, 1991
January 1, 1992
*10(p)(3) -- Second Amendment to HI's Form 10-K for the year 1-3187 10(q)(3)
Exhibit 10(p)(1) effective ended December 31, 1997
in part, August 6, 1997,
and in part, October 1,
1997
*10(q)(1) -- Director Benefits Plan HI's Form 10-K for the year 1-7629 10(m)
effective as of January 1, ended December 31, 1991
1992
*10(q)(2) -- First Amendment to Exhibit HI's Form 10-K for the year 1-7629 10(m)(1)
10(q)(1) effective as of ended December 31, 1998
August 6, 1997
*10(q)(3) -- CenterPoint Energy Outside CenterPoint Energy's Form 10-Q 1-31447 10.6
Director Benefits Plan, as for the quarter ended September
amended and restated 30, 2003
effective June 18, 2003
*10(q)(4) -- First Amendment to Exhibit CenterPoint Energy's Form 10-Q 1-31447 10.6
10(q)(3) effective as of for the quarter ended June 30,
January 1, 2004 2004
*10(r)(1) -- Executive Life Insurance HI's Form 10-K for the year 1-7629 10(q)
Plan of HI effective as of ended December 31, 1993
January 1, 1994
*10(r)(2) -- First Amendment to Exhibit HI's Form 10-Q for the quarter 1-7629 10
10(r)(1) effective as of ended June 30, 1995
January 1, 1994
*10(r)(3) -- Second Amendment to HI's Form 10-K for the year 1-3187 10(s)(3)
Exhibit 10(r)(1) effective ended December 31, 1997
as of August 6, 1997
*10(r)(4) -- CenterPoint Energy CenterPoint Energy's Form 10-Q 1-31447 10.5
Executive Life Insurance for the quarter ended September
Plan, as amended and 30, 2003
restated effective June
18, 2003
*10(s) -- Employment and HI's Form 10-Q for the quarter 1-7629 10(f)
Supplemental Benefits ended March 31, 1987
Agreement between HL&P and
Hugh Rice Kelly
*10(t)(1) -- Reliant Energy Savings Reliant Energy's Form 10-K for 1-3187 10(cc)(1)
Plan, as amended and the year ended December 31, 1999
restated effective April
1, 1999
*10(t)(2) -- First Amendment to Exhibit Reliant Energy's Form 10-Q for 1-3187 10.9
10(t)(1) effective January the quarter ended June 30, 2002
1, 1999
*10(t)(3) -- Second Amendment to Reliant Energy's Form 10-Q for 1-3187 10.10
Exhibit 10(t)(1) effective the quarter ended June 30, 2002
January 1, 1997
*10(t)(4) -- Third Amendment to Exhibit Reliant Energy's Form 10-Q for 1-3187 10.11
10(t)(1) effective January the quarter ended June 30, 2002
1, 2001

154

SEC FILE OR
EXHIBIT REGISTRATION EXHIBIT
NUMBER DESCRIPTION REPORT OR REGISTRATION STATEMENT NUMBER REFERENCE
------- ----------- -------------------------------- ------------ ---------
*10(t)(5) -- Fourth Amendment to Reliant Energy's Form 10-Q for 1-3187 10.12
Exhibit 10(t)(1) effective the quarter ended June 30, 2002
May 6, 2002
*10(t)(6) -- Fifth Amendment to Exhibit CenterPoint Energy's Form 10-K 1-31447 10(u)(6)
10(t)(1) effective January for the year ended December 31,
1, 2002 and as renamed 2002
effective October 2, 2002
+*10(t)(7) -- Sixth Amendment to Exhibit
10(t)(1) effective January
1, 2005
*10(t)(8) -- Reliant Energy Savings CenterPoint Energy's Form 10-K 1-31447 10(u)(7)
Trust between Reliant for the year ended December 31,
Energy and The Northern 2002
Trust Company, as Trustee,
as amended and restated
effective April 1, 1999
*10(t)(9) -- First Amendment to Exhibit CenterPoint Energy's Form 10-K 1-31447 10(u)(8)
10(t)(8) effective for the year ended December 31,
September 30, 2002 2002
*10(t)(10) -- Second Amendment to CenterPoint Energy's Form 10-K 1-31447 10(u)(9)
Exhibit 10(t)(8) effective for the year ended December 31,
January 6, 2003 2003
*10(t)(11) -- Reliant Energy Retirement CenterPoint Energy's Form 10-K 1-31447 10(u)(10)
Plan, as amended and for the year ended December 31,
restated effective January 2002
1, 1999
*10(t)(12) -- First Amendment to Exhibit CenterPoint Energy's Form 10-K 1-31447 10(u)(11)
10(t)(11) effective as of for the year ended December 31,
January 1, 1995 2002
*10(t)(13) -- Second Amendment to CenterPoint Energy's Form 10-K 1-31447 10(u)(12)
Exhibit 10(t)(11) for the year ended December 31,
effective as of January 1, 2002
1995
*10(t)(14) -- Third Amendment to Exhibit CenterPoint Energy's Form 10-K 1-31447 10(u)(13)
10(t)(11) effective as of for the year ended December 31,
January 1, 2001 2002
*10(t)(15) -- Fourth Amendment to CenterPoint Energy's Form 10-K 1-31447 10(u)(14)
Exhibit 10(t)(11) for the year ended December 31,
effective as of January 1, 2002
2001
*10(t)(16) -- Fifth Amendment to Exhibit CenterPoint Energy's Form 10-K 1-31447 10(u)(15)
10(t)(11) effective as of for the year ended December 31,
November 15, 2002, and as 2002
renamed effective October
2, 2002
*10(t)(17) -- Sixth Amendment to Exhibit CenterPoint Energy's Form 10-K 1-31447 10(u)(16)
10(t)(11) effective as of for the year ended December 31,
January 1, 2002 2002
*10(t)(18) -- Seventh Amendment to CenterPoint Energy's Form 10-K 1-31447 10(u)(18)
Exhibit 10(t)(11) for the year ended December 31,
effective December 1, 2003 2003

SEC FILE OR
EXHIBIT REGISTRATION EXHIBIT
NUMBER DESCRIPTION REPORT OR REGISTRATION STATEMENT NUMBER REFERENCE
------- ----------- -------------------------------- ------------ ---------
10(aa)(2) -- First Amendment to Exhibit CenterPoint Energy's Form 10-K 1-31447 10(bb)(5)
10(aa)(1) effective as of for the year ended December 31,
February 1, 2003 2002
10(aa)(3) -- Employee Matters Reliant Energy's Form 10-Q for 1-3187 10.5
Agreement, entered into as the quarter ended March 31, 2001
of December 31, 2000,
between Reliant Energy,
Incorporated and Reliant
Resources, Inc.
10(aa)(4) -- Retail Agreement, entered Reliant Energy's Form 10-Q for 1-3187 10.6
into as of December 31, the quarter ended March 31, 2001
2000, between Reliant
Energy, Incorporated and
Reliant Resources, Inc.
10(aa)(5) -- Tax Allocation Agreement, Reliant Energy's Form 10-Q for 1-3187 10.8
entered into as of the quarter ended March 31, 2001
December 31, 2000, between
Reliant Energy,
Incorporated and Reliant
Resources, Inc.
10(bb)(1) -- Separation Agreement CenterPoint Energy's Form 10-K 1-31447 10(cc)(1)
entered into as of August for the year ended December 31,
31, 2002 between 2002
CenterPoint Energy and
Texas Genco
10(bb)(2) -- Transition Services CenterPoint Energy's Form 10-K 1-31447 10(cc)(2)
Agreement, dated as of for the year ended December 31,
August 31, 2002, between 2002
CenterPoint Energy and
Texas Genco
10(bb)(3) -- Tax Allocation Agreement, CenterPoint Energy's Form 10-K 1-31447 10(cc)(3)
dated as of August 31, for the year ended December 31,
2002, between CenterPoint 2002
Energy and Texas Genco
10(bb)(4) -- Assignment and Assumption Texas Genco's Registration 1-31449 10.11
Agreement for the Statement on Form 10
Technical Services
Agreement entered into as
of August 31, 2002, by and
between CenterPoint Energy
and Texas Genco, LP
*10(cc) -- Retention Agreement Reliant Energy's Form 10-K for 1-3187 10(jj)
effective October 15, 2001 the year ended December 31, 2001
between Reliant Energy and
David G. Tees
*10(dd) -- Retention Agreement Reliant Energy's Form 10-K for 1-3187 10(kk)
effective October 15, 2001 the year ended December 31, 2001
between Reliant Energy and
Michael A. Reed
*10(ee)(1) -- Non-Qualified Executive CenterPoint Energy's Form 10-K 1-31447 10(ff)(1)
Disability Income Plan of for the year ended December 31,
Arkla, Inc. effective as 2002
of August 1, 1983

CREDIT AGREEMENT, dated as of February 3, 2005, among TEXAS GENCO
HOLDINGS, INC., a Texas corporation (the "Parent"), TEXAS GENCO GP, LLC, a Texas
limited liability company ("Genco GP"), TEXAS GENCO LP, LLC, a Delaware limited
liability company ("Genco LP"), TEXAS GENCO, LP, a Texas limited partnership
(the "Borrower"), the Lenders from time to time party hereto, DEUTSCHE BANK AG
NEW YORK BRANCH, as Administrative Agent and Collateral Agent and CITIBANK,
N.A., as Syndication Agent. Unless otherwise defined herein, all capitalized
terms used herein and defined in Section 11 are used herein as so defined.

WITNESSETH:

WHEREAS, subject to the terms and conditions set forth herein, the
Lenders are willing to make available to the Borrower the credit facility
provided herein;

NOW, THEREFORE, IT IS AGREED:

SECTION 1. Amount and Terms of Credit

1.01 The Commitments. Subject to and upon the terms and conditions
set forth herein, each Lender severally agrees, to make a term loan or term
loans (each, a "Loan" and, collectively, the "Loans") to the Borrower, which
Loans (i) shall be denominated in Dollars, (ii) shall, at the option of the
Borrower, be incurred and maintained as, and/or converted into, Base Rate Loans
or Eurodollar Loans, provided that except as otherwise specifically provided in
Section 1.10(b), all Loans comprising the same Borrowing shall at all times be
of the same Type, (iii) shall not exceed for any Lender, in initial principal
amount, that amount which equals the Commitment of such Lender at such time,
(iv) shall not exceed for all Lenders, in initial principal amount, that amount
which, equals the Total Commitment at such time and (v) shall be made pursuant
to up to two drawings, with (x) the first such drawing to be made on the
Effective Date and (y) the second such drawing to be made, at the option of the
Borrower, at any time after the Effective Date, but prior to the Commitment
Termination Date. Once repaid, Loans incurred hereunder may not be reborrowed.

1.02 Minimum Amount of Each Borrowing. The aggregate principal amount
of each Borrowing of Loans shall be not less than the Minimum Borrowing Amount.
More than one Borrowing may occur on the same date, but at no time shall there
be outstanding more than five Borrowings of Eurodollar Loans.

1.03 Notice of Borrowing. (a) Whenever the Borrower desires to incur
Loans hereunder, a Responsible Officer of the Borrower shall give the
Administrative Agent at the Notice Office, written notice (or telephonic notice
promptly confirmed in writing) on the date of each Borrowing of Base Rate Loans
and at least three Business Days' prior written notice (or telephonic notice
promptly confirmed in writing) of each Eurodollar Loan to be made hereunder,
provided that any such notice shall be deemed to have been given on a certain
day only if given before 11:00 A.M. (New York City time) on such day. Each such
written notice or written confirmation of telephonic notice (each a "Notice of
Borrowing"), except as otherwise expressly provided in Section 1.10, shall be
irrevocable and shall be given by a Responsible Officer of the Borrower in the
form of Exhibit A-1, appropriately completed to specify the aggregate principal

amount of the Loans to be made pursuant to such Borrowing, the date of such
Borrowing (which shall be a Business Day) and whether the Loans being made
pursuant to such Borrowing are to be initially maintained as Base Rate Loans or
Eurodollar Loans and, if Eurodollar Loans, the initial Interest Period to be
applicable thereto. The Administrative Agent shall promptly give each Lender
notice of such proposed Borrowing, of such Lender's proportionate share thereof
and of the other matters required by the immediately preceding sentence to be
specified in the Notice of Borrowing.

(b) Without in any way limiting the obligation of the Borrower to
confirm in writing any telephonic notice of any Borrowing, conversion or
prepayment of Loans, the Administrative Agent may act without liability upon the
basis of telephonic notice of such Borrowing, conversion or prepayment, believed
by the Administrative Agent in good faith to be from a Responsible Officer of
the Borrower prior to receipt of written confirmation. In each such case, the
Borrower hereby waives the right to dispute the Administrative Agent's record of
the terms of such telephonic notice of such Borrowing, conversion or prepayment.

1.04 Disbursement of Funds. Except as otherwise specifically provided
in the immediately succeeding sentence, no later than 12:00 Noon (New York City
time) on the date specified in each Notice of Borrowing, each Lender will make
available its to the Administrative Agent such Lender's Percentage of each
Borrowing to be made on such date. All such amounts shall be made available in
Dollars and in immediately available funds at the Payment Office, and the
Administrative Agent will make available to the Borrower at the Payment Office
the aggregate of the amounts so made available by the Lenders. Unless the
Administrative Agent shall have been notified by any Lender prior to the date of
Borrowing that such Lender does not intend to make available to the
Administrative Agent such Lender's portion of any Borrowing to be made on such
date, the Administrative Agent may assume that such Lender has made such amount
available to the Administrative Agent on such date of Borrowing and the
Administrative Agent may, in reliance upon such assumption, make available to
the Borrower a corresponding amount. If such corresponding amount is not in fact
made available to the Administrative Agent by such Lender, the Administrative
Agent shall be entitled to recover such corresponding amount on demand from such
Lender. If such Lender does not pay such corresponding amount forthwith upon the
Administrative Agent's demand therefor, the Administrative Agent shall promptly
notify the Borrower to immediately pay such corresponding amount to the
Administrative Agent. The Administrative Agent shall also be entitled to recover
on demand from such Lender or the Borrower, as the case may be, interest on such
corresponding amount in respect of each day from the date such corresponding
amount was made available by the Administrative Agent to the Borrower until the
date such corresponding amount is recovered by the Administrative Agent, at a
rate per annum equal to (i) if recovered from such Lender, the overnight Federal
Funds Rate for the first three days and at the interest rate otherwise
applicable to such Loans for each day thereafter and (ii) if recovered from the
Borrower, the rate of interest applicable to the respective Borrowing, as
determined pursuant to Section 1.08. Nothing in this Section 1.04 shall be
deemed to relieve any Lender from its obligation to make Loans hereunder or to
prejudice any rights which the Borrower may have against any Lender as a result
of any failure by such Lender to make Loans hereunder.

1.05 Notes. (a) Subject to the provisions of Section 1.05(d), the
Borrower's obligation to pay the principal of, and interest on, the Loans made
by each Lender shall be

-2-

evidenced in the Register maintained by the Administrative Agent pursuant to
Section 13.16 and shall, if requested by such Lender, also be evidenced by a
promissory note duly executed and delivered by the Borrower substantially in the
form of Exhibit B, with blanks appropriately completed in conformity herewith
(each a "Note" and, collectively, the "Notes").

(b) Each Note issued to a Lender shall (i) be executed by the
Borrower, (ii) be payable to such Lender or its registered assigns and be dated
the Effective Date (or if issued thereafter, the date of issuance), (iii) be in
a stated principal amount equal to the Commitment of such Lender as in effect on
the Effective Date immediately prior to the making of any Loans by such Lender
(or, if issued after the termination thereof, be in a stated principal amount
equal to the outstanding Loans of such Lender at such time) and be payable in
the principal amount of the Loans evidenced thereby, (iv) mature on the Maturity
Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in
respect of the Base Rate Loans and Eurodollar Loans, as the case may be,
evidenced thereby, (vi) be subject to voluntary prepayment as provided in
Section 4.01 and mandatory repayment as provided in Section 4.02 and (vii) be
entitled to the benefits of this Agreement and the other Credit Documents.

(c) Each Lender will note on its internal records the amount of each
Loan made by it and each payment in respect thereof and will prior to any
transfer of any of its Notes endorse on the reverse side thereof the outstanding
principal amount of Loans evidenced thereby. Failure to make any such notation
or any error in any such notation or endorsement shall not affect the Borrower's
obligations in respect of such Loans.

(d) Notwithstanding anything to the contrary contained above or
elsewhere in this Agreement, Notes shall only be delivered to Lenders which at
any time (or from time to time) specifically request the delivery of such Notes.
No failure of any Lender to request or obtain, produce or maintain a Note
evidencing its Loans to the Borrower shall affect or in any manner impair the
obligations of the Borrower to pay the Loans (and all related Obligations) which
would otherwise be evidenced thereby in accordance with the requirements of this
Agreement, and shall not in any way affect (i) the guaranties therefor provided
pursuant to the Guaranty or any Credit Document or (ii) the security interests
therefor granted pursuant to any Security Document or any other Credit Document.
Any Lender which does not have a Note evidencing its outstanding Loans shall in
no event be required to make the notations otherwise described in preceding
clause (c) of this Section 1.05. At any time when any Lender requests the
delivery of a Note to evidence any of its Loans, the Borrower shall promptly
execute and deliver to the respective Lender the requested Note or Notes in the
appropriate amount or amounts to evidence such Loans.

1.06 Conversions. The Borrower shall have the option to convert, on
any Business Day, all or a portion equal to at least the Minimum Borrowing
Amount of the outstanding principal amount of Loans made pursuant to one or more
Borrowings of one or more Types of Loans into a Borrowing of another Type of
Loan, provided that (i) except as otherwise provided in Section 1.10(b),
Eurodollar Loans may be converted into Base Rate Loans only on the last day of
an Interest Period applicable thereto and no partial conversion of Eurodollar
Loans shall reduce the outstanding principal amount of such Eurodollar Loans
made pursuant to a single Borrowing to less than the Minimum Borrowing Amount
applicable thereto, (ii) unless the Required Lenders otherwise agree, Base Rate
Loans may only be converted into Eurodollar

-3-

Loans if no Default or Event of Default is in existence on the date of the
conversion, and (iii) no conversion pursuant to this Section 1.06 shall result
in a greater number of Borrowings of Eurodollar Loans than is permitted under
Section 1.02. Each such conversion shall be effected by the Borrower by giving
the Administrative Agent at the Notice Office prior to 12:00 Noon (New York City
time) at least three Business Days' prior notice (each a "Notice of
Conversion/Continuation") in the form of Exhibit A-2, appropriately completed to
specify the Loans to be so converted, the Borrowing or Borrowings pursuant to
which such Loans were made and, if to be converted into Eurodollar Loans, the
Interest Period to be initially applicable thereto. The Administrative Agent
shall give each Lender prompt notice of any such proposed conversion.

1.07 Pro Rata Borrowings. Each Borrowing of Loans under this
Agreement shall be incurred from the Lenders pro rata on the basis of their
Commitments. It is understood that no Lender shall be responsible for any
default by any other Lender of its obligation to make Loans hereunder and that
each Lender shall be obligated to make the Loans provided to be made by it
hereunder, regardless of the failure of any other Lender to make its Loans
hereunder.

1.08 Interest. (a) The Borrower agrees to pay interest in respect of
the unpaid principal amount of each Base Rate Loan from the date the proceeds
thereof are made available to the Borrower until the earlier of (i) the maturity
(whether by acceleration or otherwise) of such Base Rate Loan or (ii) the
conversion of such Base Rate Loan to a Eurodollar Loan pursuant to Section 1.06,
at a rate per annum which shall be equal to the sum of the Applicable Margin
plus the Base Rate in effect from time to time.

(b) The Borrower agrees to pay interest in respect of the unpaid
principal amount of each Eurodollar Loan from the date the proceeds thereof are
made available to the Borrower until the earlier of (i) the maturity (whether by
acceleration or otherwise) of such Eurodollar Loan or (ii) the conversion of
such Eurodollar Loan to a Base Rate Loan pursuant to Section 1.06, 1.09 or 1.10,
as applicable, at a rate per annum which shall, during each Interest Period
applicable thereto, be equal to the sum of the Applicable Margin plus the
Eurodollar Rate for such Interest Period.

(c) Overdue principal and to the extent permitted by law, overdue
interest and any other amounts payable hereunder or under any other Credit
Document shall, in each case bear interest at a rate per annum equal to the
greater of (x) the rate which is 2% in excess of the rate then borne by such
Loans and (y) the rate which is 2% in excess of the rate otherwise applicable to
Base Rate Loans from time to time, and all other overdue amounts payable
hereunder and under any other Credit Document shall bear interest at a rate per
annum equal to the rate which is 2% in excess of the rate applicable to Base
Rate Loans from time to time. Interest which accrues under this Section 1.08(c)
shall be payable by the Borrower on demand.

(d) Accrued (and theretofore unpaid) interest shall be payable (i) in
respect of each Base Rate Loan (x) quarterly in arrears on each Quarterly
Payment Date, (y) in the case of a repayment in full of all outstanding Base
Rate Loans, on the date of such repayment or prepayment, and (z) at maturity
(whether by acceleration or otherwise) or such earlier date upon which the Total
Commitment is terminated and, after such date, on demand, and (ii) in respect of
each Eurodollar Loan (x) on the last day of each Interest Period applicable
thereto and, in the

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case of an Interest Period in excess of three months, on each date occurring at
three month intervals after the first day of such Interest Period and (y) on any
repayment or prepayment (on the amount repaid or prepaid), at maturity (whether
by acceleration or otherwise) and, after such maturity, on demand.

(e) Upon each Interest Determination Date, the Administrative Agent
shall determine the Eurodollar Rate for the respective Interest Period or
Interest Periods and shall promptly notify the Borrower and the Lenders thereof.
Each such determination shall, absent manifest error, be final and conclusive
and binding on all parties hereto.

1.09 Interest Periods. At the time the Borrower gives any Notice of
Borrowing or Notice of Conversion/Continuation in respect of the making of, or
conversion into, any Eurodollar Loan (in the case of the initial Interest Period
applicable thereto) or on the third Business Day prior to the expiration of an
Interest Period applicable to such Eurodollar Loan (in the case of any
subsequent Interest Period), the Borrower shall have the right to elect, by
having a Responsible Officer of the Borrower give the Administrative Agent
notice thereof (including, without limitation, in any Notice of Borrowing made
in connection with a Eurodollar Loan), the interest period (each an "Interest
Period") applicable to such Eurodollar Loan, which Interest Period shall, at the
option of the Borrower, be a one or two-month period (or, such other Interest
Period, as agreed upon by all Lenders in their sole discretion), provided that:

(i) all Eurodollar Loans comprising a Borrowing shall at all times
have the same Interest Period;

(ii) the initial Interest Period for any Eurodollar Loan shall
commence on the date of Borrowing of such Eurodollar Loan (including the date of
any conversion thereto from a Loan of a different Type) and each Interest Period
occurring thereafter in respect of such Eurodollar Loan shall commence on the
day on which the next preceding Interest Period applicable thereto expires;

(iii) if any Interest Period relating to a Eurodollar Loan begins on a
day for which there is no numerically corresponding day in the calendar month at
the end of such Interest Period, such Interest Period shall end on the last
Business Day of such calendar month;

(iv) if any Interest Period would otherwise expire on a day which is
not a Business Day, such Interest Period shall expire on the next succeeding
Business Day; provided, however, that if any Interest Period for a Eurodollar
Loan would otherwise expire on a day which is not a Business Day but is a day of
the month after which no further Business Day occurs in such month, such
Interest Period shall expire on the next preceding Business Day;

(v) unless the Required Lenders otherwise agree, no Interest Period
may be selected at any time when a Default or an Event of Default is then in
existence; and

(vi) no Interest Period in respect of any Borrowing of Eurodollar
Loans shall be selected which extends beyond the Maturity Date.

If upon the expiration of any Interest Period applicable to a
Borrowing of Eurodollar Loans, the Borrower has failed to elect, or is not
permitted to elect, a new Interest

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Period to be applicable to such Eurodollar Loans as provided above, the Borrower
shall be deemed to have elected to convert such Eurodollar Loans into Base Rate
Loans effective as of the expiration date of such current Interest Period.

1.10 Increased Costs, Illegality, etc. (a) In the event that any
Lender shall have determined (which determination shall, absent manifest error,
be final and conclusive and binding upon all parties hereto but, with respect to
clause (i) below, may be made only by the Administrative Agent):

(i) on any Interest Determination Date that, by reason of any changes
arising after the Effective Date affecting the interbank Eurodollar market,
adequate and fair means do not exist for ascertaining the applicable interest
rate on the basis provided for in the definition of Eurodollar Rate; or

(ii) at any time, that such Lender shall incur increased costs or
reductions in the amounts received or receivable hereunder with respect to any
Eurodollar Loan because of any change since the Effective Date in any applicable
law or governmental rule, regulation, order, guideline or request (whether or
not having the force of law) or in the interpretation or administration thereof
and including the introduction of any new law or governmental rule, regulation,
order, guideline or request, such as, for example, but not limited to: (A) a
change in the basis of taxation of payment to any Lender of the principal of or
interest on the Loans or the Notes or any other amounts payable hereunder
(except for changes in the rate of tax on, or determined by reference to, the
net income or net profits of such Lender pursuant to the laws of the
jurisdiction in which it is organized or in which its principal office or
applicable lending office is located or any subdivision thereof or therein), or
(B) a change in official reserve requirements, but, in all events, excluding
reserves required under Regulation D to the extent included in the computation
of the Eurodollar Rate; or

(iii) at any time, that the making or continuance of any Eurodollar
Loan has been made (x) unlawful by any law or governmental rule, regulation or
order, (y) impossible by compliance by any Lender in good faith with any
governmental request (whether or not having force of law) or (z) impracticable
as a result of a contingency occurring after the Effective Date which materially
and adversely affects the interbank Eurodollar market;

then, and in any such event, such Lender (or the Administrative Agent,
in the case of clause (i) above) shall promptly give notice (by telephone
confirmed in writing) to the Borrower and, except in the case of clause (i)
above, to the Administrative Agent of such determination (which notice the
Administrative Agent shall promptly transmit to each of the other Lenders).
Thereafter (x) in the case of clause (i) above, Eurodollar Loans shall no longer
be available until such time as the Administrative Agent notifies the Borrower
and the Lenders that the circumstances giving rise to such notice by the
Administrative Agent no longer exist, and any Notice of Borrowing or Notice of
Conversion/Continuation given by the Borrower with respect to Eurodollar Loans
which have not yet been incurred (including by way of conversion) shall be
deemed rescinded by the Borrower, (y) in the case of clause (ii) above, the
Borrower agrees to pay to such Lender, upon written demand therefor, such
additional amounts (in the form of an increased rate of, or a different method
of calculating, interest or otherwise as such Lender in its sole discretion
shall determine) as shall be required to compensate such Lender for

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such increased costs or reductions in amounts received or receivable hereunder
(a written notice as to the additional amounts owed to such Lender, showing the
basis for the calculation thereof, submitted to the Borrower by such Lender in
good faith shall, absent manifest error, be final and conclusive and binding on
all the parties hereto) and (z) in the case of clause (iii) above, the Borrower
shall take one of the actions specified in Section 1.10(b) as promptly as
possible and, in any event, within the time period required by law.

(b) At any time that any Eurodollar Loan is affected by the
circumstances described in Section 1.10(a)(ii) or (iii), the Borrower may (and
in the case of a Eurodollar Loan affected by the circumstances described in
Section 1.10(a)(iii) shall) either (x) if the affected Eurodollar Loan is then
being made initially or pursuant to a conversion, cancel the respective
Borrowing by giving the Administrative Agent telephonic notice (confirmed in
writing) on the same date that the Borrower was notified by the affected Lender
or the Administrative Agent pursuant to Section 1.10(a)(ii) or (iii) or (y) if
the affected Eurodollar Loan is then outstanding, upon at least three Business
Days' written notice to the Administrative Agent, require the affected Lender to
convert such Eurodollar Loan into a Base Rate Loan, provided that if more than
one Lender is affected at any time, then all affected Lenders must be treated
the same pursuant to this Section 1.10(b).

(c) If at any time after the Effective Date any Lender determines that
the introduction of or any change in any applicable law or governmental rule,
regulation, order, guideline, directive or request (whether or not having the
force of law) concerning capital adequacy, or any change in interpretation or
administration thereof by any governmental authority, central bank or comparable
agency, will have the effect of increasing the amount of capital required or
expected to be maintained by such Lender or any corporation controlling such
Lender based on the existence of such Lender's Commitment hereunder or its
obligations hereunder, then the Borrower agrees to pay to such Lender, upon its
written demand therefor, such additional amounts as shall be required to
compensate such Lender or such other corporation for the increased cost to such
Lender or such other corporation or the reduction in the rate of return to such
Lender or such other corporation as a result of such increase of capital. In
determining such additional amounts, each Lender will act reasonably and in good
faith and will use averaging and attribution methods which are reasonable,
provided that such Lender's determination of compensation owing under this
Section 1.10(c) shall, absent manifest error, be final and conclusive and
binding on all the parties hereto. Each Lender, upon determining that any
additional amounts will be payable pursuant to this Section 1.10(c), will give
written notice thereof to the Borrower, which notice shall show the basis for
calculation of such additional amounts.

(d) The provisions contained in this Section 1.10 shall survive the
termination of this Agreement and the payment of all amounts payable hereunder;
provided, however, that in no event shall the Borrower be obligated to reimburse
or compensate any Lender for amounts contemplated by this Section 1.10 for any
period prior to the date that is 90 days prior to the date upon which such
Lender requests in writing such reimbursement or compensation from the Borrower.
This Section 1.10(d) shall have no applicability to any other Section of this
Agreement.

1.11 Compensation. The Borrower agrees to compensate each Lender,
upon its written request (which request shall set forth the basis for requesting
such compensation), for all

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reasonable losses, expenses and liabilities (including, without limitation, any
loss, expense or liability incurred by reason of the liquidation or reemployment
of deposits or other funds required by such Lender to fund its Eurodollar Loans
but excluding any loss of anticipated profit) which such Lender may sustain: (i)
if for any reason (other than a default by such Lender) a Borrowing of, or
conversion from or into, Eurodollar Loans does not occur on a date specified
therefor in a Notice of Borrowing or Notice of Conversion/Continuation (whether
or not withdrawn by the Borrower or deemed withdrawn pursuant to Section
1.10(a)); (ii) if any repayment (including any repayment made pursuant to
Section 4.02 or as a result of an acceleration of the Loans pursuant to Section
10) or conversion of any of its Eurodollar Loans occurs on a date which is not
the last day of an Interest Period with respect thereto; (iii) if any prepayment
of any of its Eurodollar Loans is not made on any date specified in a notice of
prepayment given by the Borrower; or (iv) as a consequence of (x) any other
default by the Borrower to repay its Loans when required by the terms of this
Agreement or any Note held by such Lender or (y) any election made pursuant to
Section 1.10(b). The provisions contained in this Section 1.11 shall survive the
termination of this Agreement and the payment of all amounts payable hereunder;
provided, however, that in no event shall the Borrower be obligated to reimburse
or compensate any Lender for amounts contemplated by this Section 1.11 for any
period prior to the date that is 90 days prior to the date upon which such
Lender requests in writing such reimbursement or compensation from the Borrower,
provided, further, that this sentence shall have no applicability to any other
Section of this Agreement

1.12 Change of Lending Office. Each Lender agrees that upon the
occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or
(iii), Section 1.10(c) or Section 4.04 with respect to such Lender, it will, if
requested by the Borrower, use reasonable efforts (subject to overall policy
considerations of such Lender) to designate another lending office for any Loans
affected by such event, provided that such designation is made on such terms
that such Lender and its lending office suffer no economic, legal or regulatory
disadvantage, with the object of avoiding the consequence of the event giving
rise to the operation of such Section. Nothing in this Section 1.12 shall affect
or postpone any of the obligations of the Borrower or the rights of any Lender
provided in Sections 1.10 and 4.04.

SECTION 2. [Reserved].

SECTION 3. Commitment Commission; Fees; Reductions of Commitment.

3.01 Fees (a) The Borrower agrees to pay to the Administrative Agent
for distribution to each Non-Defaulting Lender a commitment commission (the
"Commitment Commission") for the period from the Effective Date to but excluding
the Commitment Termination Date (or such earlier date as the Total Commitment
shall have been terminated), computed at a rate per annum equal to 0.50% on the
Unutilized Commitment of each such Non-Defaulting Lender as in effect from time
to time. Accrued Commitment Commission shall be due and payable quarterly in
arrears on each Quarterly Payment Date and on the Commitment Termination Date or
such earlier date upon which the Total Commitment is terminated and after such
date, upon demand.

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(b) The Borrower agrees to pay to the Administrative Agent, for its
own account, such other fees as have been agreed to in writing by the Borrower
and the Administrative Agent.

3.02 Optional Commitment Reductions. Upon three Business Days' prior
notice from a Responsible Officer of the Borrower to the Administrative Agent at
the Notice Office (which notice the Administrative Agent shall promptly transmit
to each of the Lenders), the Borrower shall have the right, at any time or from
time to time, without premium or penalty, to terminate the Total Unutilized
Commitment in whole or reduce it in part, pursuant to this Section 3.02, in an
integral multiple of $5,000,000, provided that each such reduction shall apply
proportionately to permanently reduce the Commitment of each Lender.

3.03 Mandatory Reduction of Commitments. (a) The Total Commitment
(and the Commitment of each Lender) shall terminate in its entirety on February
11, 2005 unless this Agreement has been executed and delivered by all of the
parties hereto and the Effective Date has occurred.

(b) In addition to any other mandatory commitment reductions pursuant
to this Section 3.03, the Total Commitment (and the Commitment of each Lender)
shall (i) be reduced on each date on which Loans are incurred (after giving
effect to the making of Loans on such date) in an amount equal to the aggregate
principal amount of such Loans incurred on such date and (ii) terminate in its
entirety (to the extent not theretofore terminated) on the Commitment
Termination Date (after giving effect to any incurrence of Loans (if any) on
such date).

(c) In addition to any other mandatory commitment reductions pursuant
to this Section 3.03, the Total Commitment (and the Commitment of each Lender)
shall terminate in its entirety (to the extent not theretofore terminated) upon
a Change of Control.

SECTION 4. Prepayments; Payments; Taxes.

4.01 Voluntary Prepayments. The Borrower shall have the right to
prepay the Loans, without premium or penalty, in whole or in part at any time
and from time to time on the following terms and conditions: (i) a Responsible
Officer of the Borrower shall give the Administrative Agent prior to 12:00 Noon
(New York City time) at the Notice Office (x) at least one Business Day's prior
written notice (or telephonic notice promptly confirmed in writing) of the
Borrower's intent to prepay Base Rate Loans and (y) at least three Business
Days' prior written notice (or telephonic notice promptly confirmed in writing)
of their intent to prepay Eurodollar Loans, the amount of such prepayment and
the Types of Loans to be prepaid and, in the case of Eurodollar Loans, the
specific Borrowing or Borrowings pursuant to which made, which notice the
Administrative Agent shall promptly transmit to each of the Lenders; (ii) each
prepayment shall be in an aggregate principal amount of at least $1,000,000,
provided that if any partial prepayment of Eurodollar Loans made pursuant to any
Borrowing shall reduce the outstanding Eurodollar Loans made pursuant to such
Borrowing to an amount less than the Minimum Borrowing Amount applicable
thereto, then such Borrowing may not be continued as a Borrowing of Eurodollar
Loans and any election of an Interest Period with respect thereto given by the
Borrower shall have no force or effect; and (iii) each prepayment in respect of
any Loans made pursuant to a Borrowing shall be applied pro rata among such
Loans, provided that

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at the Borrowers' election in connection with any prepayment of Loans pursuant
to this Section 4.01(a), such prepayment shall not, so long as no Default or
Event of Default then exists, be applied to the prepayment of Loans of a
Defaulting Lender.

4.02 Mandatory Repayments. (a) In addition to any other mandatory
repayments required pursuant to this Section 4.02, all then outstanding Loans
shall be repaid in full on the Maturity Date.

(b) In addition to any other mandatory repayments required pursuant to
this Section 4.02, all then outstanding Loans shall be repaid in full upon a
Change of Control.

(c) In addition to any other mandatory repayments required pursuant to
this Section 4.02, to the extent that the Borrower or any Guarantor receive any
proceeds from the STP Acquisition, such proceeds shall be immediately applied to
the repayment of the Loans.

4.03 Method and Place of Payment. Except as otherwise specifically
provided herein, all payments under this Agreement or any Note shall be made to
the Administrative Agent for the account of the Lender or Lenders entitled
thereto not later than 12:00 Noon (New York City time) on the date when due and
shall be made in Dollars in immediately available funds at the Payment Office.
Any payments received by the Administrative Agent after such time shall be
deemed to have been received on the next Business Day. Whenever any payment to
be made hereunder or under any Note shall be stated to be due on a day which is
not a Business Day, the due date thereof shall be extended to the next
succeeding Business Day and, with respect to payments of principal, interest
shall be payable at the applicable rate during such extension.

4.04 Net Payments. (a) All payments made by the Borrower hereunder or
under any Note will be made without setoff, counterclaim or other defense.
Except as provided in Section 4.04(b), all such payments will be made free and
clear of, and without deduction or withholding for, any present or future taxes,
levies, imposts, duties, fees, assessments or other charges of whatever nature
now or hereafter imposed by any jurisdiction or by any political subdivision or
taxing authority thereof or therein with respect to such payments (but
excluding, except as provided in the second succeeding sentence, any tax imposed
on or measured by the net income or net profits of a Lender pursuant to the laws
of the jurisdiction in which it is organized or the jurisdiction in which the
principal office or applicable lending office of such Lender is located or any
subdivision thereof or therein) and all interest, penalties or similar
liabilities with respect thereto (all such non-excluded taxes, levies, imposts,
duties, fees, assessments or other charges being referred to collectively as
"Taxes"). If any Taxes are so levied or imposed, the Borrower agrees to pay the
full amount of such Taxes, and such additional amounts as may be necessary so
that every payment of all amounts due under this Agreement or under any Note,
after withholding or deduction for or on account of any Taxes, will not be less
than the amount provided for herein or in such Note. If any amounts are payable
in respect of Taxes pursuant to the preceding sentence, the Borrower agrees to
reimburse each Lender, upon the written request of such Lender, for taxes
imposed on or measured by the net income or net profits of such Lender pursuant
to the laws of the jurisdiction in which such Lender is organized or in which
the principal office or applicable lending office of such Lender is located or
under the laws of any political subdivision or taxing authority of any such
jurisdiction in which such

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Lender is organized or in which the principal office or applicable lending
office of such Lender is located and for any withholding or similar taxes as
such Lender shall determine are payable by, or withheld from, such Lender but
only in respect of such amounts so paid to or on behalf of such Lender pursuant
to the preceding sentence and in respect of any amounts paid to or on behalf of
such Lender pursuant to this sentence. The Borrower will furnish to the
Administrative Agent within 45 days after the date the payment or other
documentary proof providing evidence of such payment that is satisfactory to the
Administrative Agent of any Taxes is due pursuant to applicable law certified
copies of tax receipts evidencing such payment by the Borrower. The Borrower
agrees to indemnify and hold harmless each Lender, and reimburse such Lender
upon its written request, for the amount of any Taxes so levied or imposed and
paid by such Lender.

(b) Each Lender that is not a United States person (as such term is
defined in Section 7701(a)(30) of the Internal Revenue Code) agrees to deliver
to the Borrower and the Administrative Agent on or prior to the Effective Date,
or in the case of a Lender that is an assignee or transferee of an interest
under this Agreement pursuant to Section 13.04 (unless the respective Lender was
already a Lender hereunder immediately prior to such assignment or transfer), on
the date of such assignment or transfer to such Lender, (i) two accurate and
complete original signed copies of Internal Revenue Service Form W-8ECI or Form
W-8BEN (with respect to a complete exemption under an income tax treaty) (or
successor forms) certifying to such Lender's entitlement to a complete exemption
from United States withholding tax with respect to payments to be made under
this Agreement and under any Note, or (ii) if the Lender is not a "bank" within
the meaning of Section 881(c)(3)(A) of the Internal Revenue Code and cannot
deliver either Internal Revenue Service Form W-8ECI or Form W-8BEN (with respect
to a complete exemption under an income tax treaty) pursuant to clause (i)
above, (x) a certificate substantially in the form of Exhibit C (any such
certificate, a "Section 4.04(b)(ii) Certificate") and (y) two accurate and
complete original signed copies of Internal Revenue Service Form W-8BEN (with
respect to the portfolio interest exemption) (or successor form) certifying to
such Lender's entitlement to a complete exemption from United States withholding
tax with respect to payments of interest to be made under this Agreement and
under any Note. In addition, each Lender agrees that from time to time after the
Effective Date, when a lapse in time or change in circumstances renders the
previous certification obsolete or inaccurate in any material respect, it will
deliver to the Borrower and the Administrative Agent two new accurate and
complete original signed copies of Internal Revenue Service Form W-8ECI, Form
W-8BEN (with respect to the benefits of any income tax treaty), or Form W-8BEN
(with respect to the portfolio interest exemption) and a Section 4.04(b)(ii)
Certificate, as the case may be, and such other forms as may be required in
order to confirm or establish the entitlement of such Lender to a continued
exemption from or reduction in United States withholding tax with respect to
payments under this Agreement and any Note, or it shall immediately notify the
Borrower and the Administrative Agent of its inability to deliver any such Form
or Certificate, in which case such Lender shall not be required to deliver any
such Form or Certificate pursuant to this Section 4.04(b). Notwithstanding
anything to the contrary contained in Section 4.04(a), but subject to Section
13.04(b) and the immediately succeeding sentence, (x) the Borrower shall be
entitled, to the extent it is required to do so by law, to deduct or withhold
income or similar taxes imposed by the United States (or any political
subdivision or taxing authority thereof or therein) from interest, fees or other
amounts payable hereunder for the account of any Lender which is not a United
States person (as such term is defined in Section 7701(a)(30) of the Internal
Revenue Code) for U.S. Federal income tax purposes to the extent that such
Lender has not

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provided to the Borrower U.S. Internal Revenue Service Forms that establish a
complete exemption from such deduction or withholding and (y) the Borrower shall
not be obligated pursuant to Section 4.04(a) hereof to gross-up payments to be
made to a Lender, or to indemnify, hold harmless or reimburse such Lender, in
respect of income or similar taxes imposed by the United States if (I) such
Lender has not provided to the Borrower the Internal Revenue Service Forms
required to be provided to the Borrower pursuant to this Section 4.04(b) or (II)
in the case of a payment, other than interest, to a Lender described in clause
(ii) above, to the extent that such forms do not establish a complete exemption
from withholding of such taxes. Notwithstanding anything to the contrary
contained in the preceding sentence or elsewhere in this Section 4.04 and except
as set forth in Section 13.04(b), the Borrower agrees to pay additional amounts
and to indemnify each Lender in the manner set forth in Section 4.04(a) (without
regard to the identity of the jurisdiction requiring the deduction or
withholding) in respect of any amounts deducted or withheld by it as described
in the immediately preceding sentence as a result of any changes after the
Effective Date in any applicable law, treaty, governmental rule, regulation,
guideline or order, or in the interpretation thereof, relating to the deducting
or withholding of income or similar Taxes (except for changes in the rate of tax
on, or determined by reference to, the net income or net profits of such Lender
pursuant to the laws of the jurisdiction in which it is organized or in which
its principal office or applicable lending office is located or any subdivision
thereof or therein provided that this parenthetical exception shall not apply
for purposes of applying the fourth sentence of Section 4.04(a)).

SECTION 5. Conditions Precedent to the Effective Date. The occurrence
of the Effective Date pursuant to Section 13.10 is subject to the satisfaction
of the following conditions:

5.01 Execution of Agreement; Notes. On or prior to the Effective Date
(i) this Agreement shall have been executed and delivered as provided in Section
13.10 and (ii) there shall have been delivered to each Lender that has requested
same, the appropriate Note executed by the Borrower, in each case in the amount,
maturity and as otherwise provided herein.

5.02 Officer's Certificate. On the Effective Date, the Agents shall
have received a certificate, dated the Effective Date, and signed on behalf of
the Borrower by a Responsible Officer, stating that all conditions in Sections
5.05, 5.07 and 6.02 have been satisfied on such date.

5.03 Opinions of Counsel. The Agents shall have received legal
opinions addressed to each Agent and the Lenders from (i) Baker Botts L.L.P.
(New York counsel to the Credit Parties) and (ii) the Deputy General Counsel of
the Parent, in each case covering matters, reasonably acceptable to the Agents
including, without limitation, (x) a no-conflicts opinion (A) given by Baker
Botts L.L.P. as to (1) the Indebtedness of any Credit Party which will remain
outstanding as of the Effective Date (if any) and (2) the CNP Credit Agreement
and the Transaction Agreement and (B) given by the Deputy General Counsel of
CenterPoint Energy as to any other material contracts of CenterPoint Energy and
any material contracts of Parent or its subsidiaries, (y) an opinion given by
Baker Botts L.L.P. covering creation and perfection of the security interests
granted under the Security Documents and (z) and such other matters incident to
the transactions contemplated hereby as the Administrative Agent may reasonably
request.

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5.04 Corporate Documents; Proceedings; etc. (a) On the Effective
Date, the Administrative Agent shall have received from each Credit Party, a
certificate, dated the Effective Date, signed by a Responsible Officer of such
Credit Party, and attested to by the Secretary or Assistant Secretary of such
Credit Party, in the form of Exhibit E with appropriate insertions, together
with copies of (i) the certificate of incorporation and by-laws (or equivalent
organizational documents), (ii) long-form good standing certificates (or
equivalent thereof) of such Credit Party and (iii) the resolutions of such
Credit Party referred to in such certificate, and the foregoing shall be in form
and substance reasonably acceptable to the Administrative Agent.

(b) All corporate, partnership, limited liability company and legal
proceedings and all instruments and agreements in connection with the
transactions contemplated by this Agreement and the other Credit Documents shall
be reasonably satisfactory in form and substance to the Administrative Agent,
and the Administrative Agent shall have received all information and copies of
all documents and papers, including governmental approvals, good standing
certificates and bring-down telegrams, if any, which the Administrative Agent
reasonably may have requested in connection therewith, such documents and papers
where appropriate to be certified by proper corporate or governmental
authorities.

5.05 Security Documents. (a) On the Effective Date, the Borrower
shall have duly authorized, executed and delivered the Pledge Agreement in the
form of Exhibit F (as modified, supplemented or amended from time to time, the
"Pledge Agreement") and, to the extent contemplated by the Pledge Agreement,
shall have delivered to the Collateral Agent, as pledgee thereunder, the
Collateral, and the Pledge Agreement shall be in full force and effect.

(b) On the Effective Date, (i) the Borrower, DBAG as an Existing LC
Issuer and the Collateral Agent shall have duly authorized, executed and
delivered a letter agreement and (ii) the Borrower, Citibank, as an Existing LC
Issuer and the Collateral Agent shall have duly authorized, executed and
delivered a letter agreement, each in the form of Exhibit G (each as modified,
supplemented or amended from time to time, an "Intercreditor Agreement" and
collectively the "Intercreditor Agreements"), and the Intercreditor Agreements
shall be in full force and effect.

(c) On or prior to the Effective Date, the Credit Parties shall have
delivered to the Collateral Agent:

(i) proper Financing Statements (Form UCC-1 or the appropriate
equivalent) fully executed for filing under the UCC of each jurisdiction as
may be necessary or, in the opinion of the Collateral Agent, desirable to
perfect the security interests purported to be created by the Security
Documents;

(ii) certified copies of Requests for Information or Copies (Form
UCC-11), or equivalent reports, listing all effective Financing Statements
that name the Parent or any of its Subsidiaries, in each case as debtor and
that are filed in the jurisdictions referred to in clause (i) above,
together with copies of such other Financing Statements filed in any other
jurisdiction that name the Parent or any of its Subsidiaries as debtor
(none of which shall cover the Collateral except to the extent evidencing
Permitted Liens);

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(iii) evidence of the completion of all other recordings and filings
of, or with respect to, the Security Documents as may be necessary or, in
the reasonable opinion of the Collateral Agent, desirable to effectively to
perfect the security interests purported to be created by the Security
Documents; and

(iv) evidence that all other actions necessary or, in the reasonable
opinion of the Collateral Agent, desirable to perfect and protect the
security interests purported to be created by the Security Documents have
been taken;

5.06 Guaranties. On the Effective Date, each Guarantor shall have
duly authorized, executed and delivered a counterpart to this Agreement and the
Guaranty shall be in full force and effect.

5.07 Adverse Change; Governmental and Third Party Approvals; etc. (a)
Since December 31, 2003, nothing shall have occurred (and neither the Agents nor
any Lender shall have become aware of any facts or conditions not previously
known) which any Agent or the Required Lenders shall determine could reasonably
be expected to have a Material Adverse Effect.

(b) On or prior to the Effective Date, all necessary governmental
(domestic and foreign) and third party approvals and/or consents in connection
with the transactions contemplated by the Credit Documents and otherwise
referred to herein shall have been obtained and remain in effect, and all
applicable waiting periods shall have expired without any action being taken by
any competent authority which in the reasonable judgment of the Agents or the
Required Lenders restrains, prevents or imposes materially adverse conditions
upon the consummation of the transactions contemplated by the Credit Documents.
Additionally, there shall not exist any judgment, order, injunction or other
restraint issued or filed or a hearing seeking injunctive relief or other
restraint pending or notified prohibiting or imposing materially adverse
conditions upon the making of any Loan or the consummation of the transactions
contemplated by the Credit Documents.

(c) On the Effective Date, no consents or approvals shall be required
to be obtained by CenterPoint Energy or any of its Affiliates or any Credit
Party or any of their Affiliates from (i) the lenders under CenterPoint Energy's
senior credit agreement, dated as of October 7, 2003 and agented by JPMorgan
Chase (as in effect on the Effective Date, the "CNP Credit Agreement") or (ii)
the Buyer or any of its Affiliates, in each case, in connection with the
entering into of (1) this Agreement (and the incurrence of Loans hereunder), (2)
any Security Document (and the granting of Liens thereunder) or (3) any of the
other Credit Document or any other documents referred to therein or herein (and
any transaction contemplated hereby or thereby).

5.08 Litigation. On the Effective Date, no litigation by any entity
(private or governmental) shall be pending or threatened with respect to this
Agreement, any other Credit Document or any other documentation executed in
connection herewith and therewith or the transactions contemplated hereby and
thereby, or which the Agents or the Required Lenders shall determine has had, or
could reasonably be expected to have, a Material Adverse Effect.

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5.09 Financial Statements; Projections. On or prior to the Effective
Date, there shall have been delivered to the Administrative Agent and each
Lender (i) true and correct copies of the historical and pro forma financial
statements referred to in Section 7.05(a) and (ii) projected consolidated
statements of income and cash flow of the Parent and its Subsidiaries for the
period through December 31, 2005 (the "Projections"), which Projections and
historical and pro forma financial statements shall (x) in the case of the
Projections, reflect the forecasted financial condition and results of
operations of the Parent and its Subsidiaries after giving effect to the
transactions contemplated by the Credit Documents and the Transaction Agreement
and (y) in each case, be in form and substance reasonably satisfactory to the
Agents.

5.10 Fees, etc. On the Effective Date, all costs, fees and expenses
(including, without limitation, the reasonable legal fees and expenses of White
& Case LLP) payable to the Agents and the Lenders shall have been paid to the
extent due.

5.11 Insurance. On or prior to the Effective Date, the Administrative
Agent shall have received evidence of insurance maintained by the Parent and its
Subsidiaries with responsible and reputable insurance companies or associations
in such amounts, subject to customary self-insurance, and covering such risks as
is customarily carried by companies engaged in the electric generation industry
with similar assets in similar areas which the Parent and such Subsidiaries
operate.

SECTION 6. Conditions Precedent to All Credit Events. The obligation
of each Lender to make Loans (including Loans made on the Effective Date) is
subject, at the time of each such Credit Event, to the satisfaction of the
following conditions:

6.01 Effective Date. The Effective Date shall have occurred.

6.02 No Default; Representations and Warranties. At the time of each
such Credit Event and also after giving effect thereto (i) there shall exist no
Default or Event of Default and (ii) all representations and warranties
contained herein and in the other Credit Documents shall be true and correct in
all material respects with the same effect as though such representations and
warranties had been made on the date of such Credit Event (it being understood
and agreed that any representation or warranty which by its terms is made as of
a specified date shall be required to be true and correct in all material
respects only as of such specified date).

6.03 Notice of Borrowing. Prior to the making of each Loan, the
Administrative Agent shall have received the notice required by Section 1.03(a).

The acceptance of the benefit of each Credit Event shall constitute a
representation and warranty by the Borrower to the Agents and each of the
Lenders that all the conditions specified (x) in the case of Credit Events
occurring on the Effective Date, in Section 5 and (y) in the case of Credit
Events occurring on or after the Effective Date, in this Section 6 and
applicable to such Credit Event have been satisfied as of that time. All of the
Notes, certificates, legal opinions and other documents and papers referred to
in Section 5 and in this Section 6, unless otherwise specified, shall be
delivered to the Administrative Agent at the Notice Office for the account of
each of the

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Lenders and, except for the Notes, in sufficient counterparts or copies for each
of the Lenders and shall be in form and substance reasonably satisfactory to the
Lenders.

SECTION 7. Representations, Warranties and Agreements. In order to
induce the Lenders to enter into this Agreement and to make the Loans, as
provided herein, each Credit Party makes the following representations,
warranties and agreements, in each case after giving effect to the occurrence of
the Effective Date, all of which shall survive the execution and delivery of
this Agreement and the Notes and the making of the Loans, with the occurrence of
each Credit Event on or after the Effective Date being deemed to constitute a
representation and warranty that the matters specified in this Section 7 are
true and correct in all material respects on and as of the Effective Date and on
the date of each such Credit Event (it being understood and agreed that any
representation or warranty which by its terms is made as of a specified date
shall be required to be true and correct in all material respects only as of
such specified date).

7.01 Corporate Status. Each Credit Party and each of its Subsidiaries
(i) is a duly organized and validly existing corporation, limited partnership or
limited liability company, as the case may be, in good standing under the laws
of the jurisdiction of its organization, (ii) has the corporate, limited
partnership or limited liability company power and authority, as the case may
be, to own its property and assets and to transact the business in which it is
engaged and presently proposes to engage and (iii) is duly qualified as a
foreign corporation, limited partnership or limited liability company, as the
case may be, and is authorized to do business and is in good standing in each
jurisdiction where the ownership, leasing or operation of property or the
conduct of its business requires such qualifications, except, in the case of
preceding clause (iii), in those jurisdictions where the failure to be so
qualified could not reasonably be expected to, either individually or in the
aggregate, have a Material Adverse Effect.

7.02 Corporate Power and Authority. Each Credit Party has the
corporate, limited partnership or limited liability company power and authority,
as the case may be, to execute, deliver and carry out the terms and provisions
of each of the Credit Documents to which it is party and has taken all necessary
corporate, limited partnership or limited liability company action, as the case
may be, to authorize the execution, delivery and performance by it of each
Credit Document to which it is a party. Each Credit Party has duly executed and
delivered each Credit Document to which it is party and each such Credit
Document constitutes the legal, valid and binding obligation of such Credit
Party enforceable against such Credit Party in accordance with its terms, except
to the extent that the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization or other similar laws affecting
creditors' rights generally and by equity principles (regardless of whether
enforcement is sought in equity or at law).

7.03 No Violation. Neither the execution, delivery or performance by
any Credit Party of any Credit Document to which it is a party, nor compliance
by it with any of the terms and provisions thereof, (i) will contravene any
provision of any law, statute, rule or regulation or any order, writ, injunction
or decree of any court or governmental instrumentality, (ii) will conflict or be
inconsistent with or result in any breach of any of the terms, covenants,
conditions or provisions of, or constitute a default under, or result in the
creation or imposition of (or the obligation to create or impose) any Lien
(except pursuant to the Security Documents) upon (x) any property or asset of
such Credit Party or any of its Subsidiaries pursuant to the terms of any
indenture, mortgage, deed of trust, credit agreement, loan agreement or any
other material

-16-

agreement, contract or instrument to which such Credit Party or any of its
Subsidiaries is a party or by which it or any of their respective property or
assets are bound or to which it may be subject or (y) under the CNP Credit
Agreement or the Transaction Agreement or (iii) will violate any provision of
the articles of incorporation or by-laws (or equivalent organizational
documents) of such Credit Party or any of its Subsidiaries.

7.04 Governmental Approvals. No order, consent, approval, license,
authorization or validation of, or filing, recording or registration with
(except as have been obtained or made and are listed in Schedule III attached
hereto, if any, and except for any filings of financing statements, mortgages
and other documents required by the Security Documents, all of which have been
made), or exemption by, any governmental or public body or authority, or any
subdivision thereof, is required to authorize, or is required in connection
with, (i) the execution, delivery and performance of any Credit Document or (ii)
the legality, validity, binding effect or enforceability of any such Credit
Document.

7.05 Financial Statements; Financial Condition. (a) The audited
statements of Consolidated financial condition of the Parent and its
Subsidiaries for the fiscal year ending December 31, 2003 and the related
Consolidated statements of income and cash flows of the Parent and its
Subsidiaries for such fiscal year ended on such date (which have been certified
by nationally recognized independent certified public accountants satisfactory
to the Agents and previously delivered to each Lender) fairly present, in all
material respects, the Consolidated financial condition of the Parent and its
Subsidiaries as at such date and the Consolidated results of the operations of
the Parent and its Subsidiaries for the periods ended on such dates, all in
accordance with generally accepted accounting principles consistently applied,
except for the inclusion of detailed footnotes and subject to year-end audit
adjustments. The unaudited pro forma balance sheets as of September 30, 2004 and
the related income statements of the Parent and its Subsidiaries on a
Consolidated basis for the nine month periods ended September 30, 2003 and
September 30, 2004, in each case, prepared by management of the Parent (and
previously delivered to each Lender) on the basis of the historical audited
balance sheets and income statements of the Parent and its Subsidiaries for the
nine-month periods ending September 30, 2003 and September 30, 2004, in each
case, as though the transactions contemplated by the Transaction Agreement
(other than the STP Acquisition) had been completed immediately prior to the
beginning of such periods have been prepared in a manner reasonably satisfactory
to the Agents and fairly present, in all material respects, the Consolidated
financial condition of the Parent and its Subsidiaries as at such dates and
contain all pro forma adjustments necessary in order to fairly reflect such
assumptions; provided, however, that such unaudited pro forma financial
statements do not purport to present the actual results of operations of the
Parent and its Subsidiaries on a Consolidated basis as if the transaction
contemplated by the Transaction Agreement had occurred at the beginning of each
period, as applicable, nor are they necessarily indicative of the financial
position or results of operations of the Parent and its Subsidiaries on a
Consolidated basis that may be achieved in the future.

(b) Since December 31, 2003, there has been no Material Adverse
Change.

7.06 Litigation. There is no pending or threatened action, suit,
investigation, litigation or proceeding, including, without limitation, any
Environmental Action, affecting any Credit Party or any of its Subsidiaries
before any court, agency of any Governmental Authority,

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or arbitrator that (i) could reasonably be expected to have a Material Adverse
Effect or (ii) purports to affect the legality, validity or enforceability of
this Agreement or any other Credit Document or the consummation of the
transactions contemplated hereby.

7.07 True and Complete Disclosure. All written information heretofore
furnished by or on behalf of any Credit Party to the Administrative Agent or any
Lender for purposes of or in connection with this Agreement, any Credit Document
or any transaction contemplated hereby or thereby is, and all such information
hereafter furnished by or on behalf of any Credit Party to the Administrative
Agent or any Lender will be, true and accurate in all material respects on the
date as of which such information is stated in the light of the circumstances
under which such information was provided (as modified or supplemented by other
information so furnished, when taken together as a whole as of the date so
stated); provided, that, with respect to the Projections, such Credit Party
represents only that such information was prepared in good faith based on
assumptions believed to be reasonable at the time, it being recognized by the
Lenders that such Projections as to future events are not to be viewed as facts
and that actual results during the period or periods covered by any such
projections may differ from the projected results. Each Credit Party has
disclosed to the Administrative Agent any and all facts specific to such Credit
Party and its Subsidiaries and known as of the Effective Date to a Responsible
Officer of such Credit Party that could reasonably be expected to result in a
Material Adverse Effect or which could reasonably be expected to result in a
Material Adverse Change.

7.08 Use of Proceeds; Margin Regulations. (a) The proceeds of the
Loans shall be used by the Borrower (x) on the Effective Date to (i) to pay fees
and expenses incurred in connection with this Agreement and the other Credit
Documents and (ii) to repay amounts owing as of the Effective Date to
CenterPoint Energy pursuant to the Tax Allocation Agreement (as defined in the
Transaction Agreement) in accordance with Section 6.6(m) of the Transaction
Agreement in an aggregate amount no less than $59,000,000 and (y) at any time
after the Effective Date, to fund the Borrower's working capital requirements to
meet operating cash needs in accordance with Section 6.1(1)(iii) of the
Disclosure Letter (including, without limitation, to fund the Borrower's payment
of amounts that become owing to CenterPoint Energy pursuant to the Tax
Allocation Agreement at any time after the Effective Date). Except as provided
in clause (x)(ii) or (y) above, no proceeds of any Loans shall be used to
directly or indirectly pay any Dividends to, or make any Investments in,
CenterPoint Energy or any of its Affiliates.

(b) No Credit Party is engaged in the business of extending credit for
the purpose of purchasing or carrying Margin Stock, and no proceeds of any Loan
will be used to purchase or carry any Margin Stock or to extend credit to others
for the purpose of purchasing or carrying any Margin Stock.

7.09 Tax Returns and Payments. Each of Parent and each of its
Subsidiaries has timely filed or caused to be timely filed with the appropriate
taxing authority all federal and state income tax returns and all other material
tax returns, statements, forms and reports for taxes, domestic and foreign (the
"Returns") required to be filed by, or with respect to the income, properties or
operations of, Parent and/or any of its Subsidiaries, except to the extent
failure to make such filings could not reasonably be expected to have a Material
Adverse Effect. The Returns accurately reflect in all material respects all
liability for taxes of Parent and its

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Subsidiaries for the periods covered thereby. Each of Parent and each of its
Subsidiaries has paid all taxes and assessments payable, other than those that
are being contested in good faith and adequately disclosed and fully provided
for on the financial statements of Parent and its Subsidiaries in accordance
with GAAP, except to the extent failure to make such payment could not
reasonably be expected to have a Material Adverse Effect. There is no material
action, suit, proceeding, investigation, audit or claim now pending or, to the
best knowledge of Parent or any of its Subsidiaries, threatened by any authority
regarding any taxes relating to Parent or any of its Subsidiaries which could
reasonably be expected to have a Material Adverse Effect. Neither Parent nor any
of its Subsidiaries has entered into an agreement or waiver or been requested to
enter into an agreement or waiver extending any statute of limitations relating
to the payment or collection of taxes of Parent or any of its Subsidiaries which
could reasonably be expected to have a Material Adverse Effect.

7.10 Compliance with ERISA. Each Credit Party and each of its
Subsidiaries are in compliance with all applicable laws, ordinances, rules,
regulations, and requirements of governmental authorities (including, without
limitation, Environmental Laws and ERISA and the rules and regulations
thereunder), and have obtained and are in compliance with, all Environmental
Permits required for the operation of the Borrower's business except for any
non-compliance that could not reasonably be expected to have a Material Adverse
Effect. No ERISA Event has occurred which could reasonably be expected to have a
Material Adverse Effect. No Plan has an Unfunded Current Liability which, when
added to the aggregate amount of Unfunded Current Liabilities with respect to
all other Plans, could reasonably be expected to have a Material Adverse Effect.

7.11 Solvency. On the Effective Date and after giving effect to the
Loans incurred thereon, the transactions and financings contemplated hereby and
by each of the other Credit Documents, (i) the Borrower on a stand alone basis
and (ii) each of the Parent and its Subsidiaries taken as a whole is, in each
case Solvent.

7.12 Security Documents. The security interests created in favor of
the Collateral Agent (or its delegees, as the case may be) for the benefit of
the Lenders under each Security Document constitute perfected security interests
in the Collateral covered by such Security Documents subject to no Lien of any
other Person; provided that it is understood and agreed that the Existing
Collateral (as defined in the Security Documents) are subject to the Liens of
the Existing LC Issuers. No consents, filings or recordings are required in
order to perfect, and/or maintain the perfection and priority of, the security
interests purported to be created by any Security Document.

7.13 Compliance with Statutes, etc. The Borrower and each of its
Subsidiaries is in compliance with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental bodies,
domestic or foreign, in respect of the conduct of their business and the
ownership of their property, except such noncompliances as could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.

7.14 Investment Company Act. No Credit Party nor any Subsidiary of
any Credit Party is an "investment company" as defined in, or otherwise subject
to regulation under, the Investment Company Act of 1940, as amended. Neither the
execution, delivery or performance

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by any Credit Party of any Credit Document to which it is a party, nor
compliance by it with any of the terms and provisions thereof will violate any
regulation under the Public Utility Holding Company Act of 1935, as amended or
any order or approval issued in connection therewith.

7.15 Environmental Matters. There are no facts, circumstances or
conditions relating to the past or present business or operations of each Credit
Party or any of its Subsidiaries or any of their predecessors (including the
disposal of any wastes, hazardous substances or other materials), or to any Real
Property at any time owned, leased or operated by any of them, that could
reasonably be expected (i) to give rise to any Environmental Action which could
reasonably be expected to have a Material Adverse Effect, or (ii) to subject any
Real Property owned, leased or operated by each Credit Party or any of its
Subsidiaries to any restrictions on the ownership, lease, occupancy, use or
transfer of such Real Property under any Environmental Law which could
reasonably be expected to have a Material Affect Effect.

7.16 Existing Indebtedness. On the Effective Date (after giving
effect to the use of proceeds from the Loans made on such date), the Parent and
its Subsidiaries shall have no (x) outstanding Indebtedness (including, without
limitation, intercompany Indebtedness) or (y) preferred equity, in each case,
except as set forth on Schedule IV hereto.

7.17 Subsidiaries. As of the Initial Borrowing Date, the Credit
Parties have no Subsidiaries other than those Subsidiaries listed on Schedule V.
Schedule V correctly sets forth, as of the Effective Date, the percentage
ownership (direct or indirect) of each Credit Party in each class of capital
stock or other equity of its Subsidiaries and also identifies the direct owner
thereof.

SECTION 8. Affirmative Covenants. Each Credit Party hereby covenants
and agrees that on and after the Effective Date and until the Total Commitment
has terminated and the Loans and Notes (in each case together with interest
thereon), Fees and all other Obligations (other than indemnities described in
Section 13.13 which are not then due and payable) incurred hereunder and
thereunder, are paid in full:

8.01 Information Covenants. The Parent and the Borrower shall furnish
to each Lender:

(a) as soon as practicable and in any event within 60 days after the
end of each of the first three quarters of each fiscal year of the Parent,
unaudited Consolidated balance sheets of the Parent and its Subsidiaries,
prepared in conformity with GAAP consistently applied, as of the end of such
quarter and Consolidated statements of income and cash flows of the Parent and
its Subsidiaries, prepared in conformity with GAAP consistently applied, for the
period commencing at the end of the previous fiscal year and ending with the end
of such quarter, duly certified by a Responsible Officer of the Parent as having
been prepared in accordance with GAAP and certificates of a Responsible Officer
of the Parent as to compliance with the terms of this Agreement;

(b) as soon as practicable and in any event within 120 days after the
end of each fiscal year of the Parent commencing 2005, unaudited Consolidated
balance sheets of the Parent and its Subsidiaries as of the end of such fiscal
year and unaudited Consolidated

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statements of income and cash flows of the Parent and its Subsidiaries for such
fiscal year, in each case prepared in conformity with GAAP consistently applied;

(c) without duplication of any other certificate described in Section
8.01(a), with each set of statements to be delivered pursuant to Section 8.01(a)
and (b) above, a certificate in a form reasonably satisfactory to the
Administrative Agent, signed by a Responsible Officer of the Parent certifying
that no Default or Event of Default has occurred and is continuing or, if there
is any Default or Event of Default, describing it and the steps, if any, being
taken to cure it;

(d) as soon as practicable and in any event, within five Business Days
after a Responsible Officer of the Borrower becomes aware of the occurrence of
each Default or Event of Default continuing on the date of such statement, a
statement of a Responsible Officer of the Borrower setting forth details of such
Default or Event of Default and the action that the Borrower has taken and
proposes to take with respect thereto;

(e) [Reserved];

(f) promptly after the commencement thereof, notice of all actions and
proceedings before any court, governmental agency or arbitrator affecting the
Borrower or any of its Subsidiaries of the type described in Section 7.06;

(g) within five Business Days after any officer of a Credit Party or
any of its Subsidiaries obtains knowledge thereof, notice of any of the
following environmental matters, to the extent such matters individually or in
the aggregate could reasonably be expected to have a Material Adverse Effect:
(i) any claim against any Credit Party or any of its Subsidiaries, or any Real
Property owned, leased or occupied by any Credit Party or any of its
Subsidiaries, under any Environmental Law; (ii) any condition or occurrence that
results in noncompliance by any Credit Party or any of its Subsidiaries with
Environmental Law or that could reasonably be expected to form the basis of any
Environmental Action against, or to any liability on the part of any Credit
Party or any of its Subsidiaries under any Environmental Law; and (iii) any
condition or occurrence that could reasonably be expected to cause any Real
Property owned, leased or occupied by any Credit Party or any of its
Subsidiaries to be subject to any restrictions on the ownership, lease,
occupancy, use or transfer of such Real Property under any Environmental Law;
such notices shall describe in reasonable detail the nature of the claim,
threatened claim, notice of potential liability, condition or occurrence and the
Credit Party's or such Subsidiary's response thereto;

(h) with reasonable promptness, upon the Borrower or any ERISA
Affiliate becoming aware of (A) the occurrence of any ERISA Event that could,
individually or in the aggregate, be reasonably expected to result in a
liability in excess of $50,000,000 to any Credit Party or any ERISA Affiliate or
that could reasonably be expected to have a Material Adverse Effect, or (B) a
Plan that has an Unfunded Current Liability which, when added to the aggregate
amount of Unfunded Current Liabilities with respect to all other Plans could
reasonably be expected to have a Material Adverse Effect, a written notice
specifying the nature thereof, what action the Credit Party or any ERISA
Affiliate has taken, is taking or proposes to take with respect thereto and,
when known, any action taken or threatened by the Internal Revenue Service, the
Department of Labor or the PBGC with respect thereto;

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(i) with reasonable promptness, copies of (a) all written notices
received by the Borrower or any ERISA Affiliate from a Multiemployer Plan
sponsor concerning an ERISA Event that could reasonably be expected to result in
a liability in excess of $50,000,000 or that could reasonably be expected to
have a Material Adverse Effect; and (b) such other documents or governmental
reports or filings relating to any Plan or Multiemployer Plan as the Lenders
shall reasonably request;

(j) [Reserved]; and

(k) such other information respecting the Parent or any of its
Subsidiaries as any Lender through the Administrative Agent may from time to
time reasonably request.

Information required to be delivered pursuant to this Section 8.01
shall be deemed to have been delivered on the date on which each Agent receives
such Information or notice (which notice the Administrative Agent shall convey
promptly to the Lenders) that such information has been posted on the Securities
and Exchange Commission website on the internet at sec.gov/edgar/searches.htm or
at another website identified in such notice and accessible by the Lenders
without charge; provided that such notice may be included in a certificate
delivered pursuant to Section 8.01(c).

8.02 Keeping of Books. Each Credit Party shall keep, and cause each
of its Subsidiaries to keep, proper books of record and account, in which full
and correct entries shall be made of all financial transactions and the assets
and business of such Credit Party and each such Subsidiary in accordance with
GAAP.

8.03 Maintenance of Insurance. Each Credit Party shall, and shall
cause each of its respective Subsidiaries to, maintain, insurance with
responsible and reputable insurance companies or associations in such amounts
and covering such risks as is usually carried by companies engaged in similar
businesses and owning similar properties; provided, however, that any Credit
Party or its Subsidiaries may self-insure to the extent consistent with prudent
business practice.

8.04 Preservation of Existence, Etc. Each Credit Party shall preserve
and maintain, and cause each of its Subsidiaries to preserve and maintain, its
existence, rights (charter and statutory) and franchises, except (other than in
the case of the Borrower) to the extent such failure could not reasonably be
expected to have a Material Adverse Effect.

8.05 Maintenance of Properties, Etc. Each Credit Party shall maintain
and preserve, and cause each of its Subsidiaries to maintain and preserve, all
of its properties that are used or useful in the conduct of its business in good
working order and condition, ordinary wear and tear excepted; provided, however,
the foregoing shall not prohibit the Borrower from (i) mothballing any of its
generating units from time to time in its reasonable commercial judgment if
mothballing such units could not reasonably be expected to have a Material
Adverse Effect or (ii) failing to preserve or maintain any such properties, the
preservation and maintenance of which in the good faith judgment of the Borrower
is inadvisable or unnecessary to the business of the Borrower or its
Subsidiaries, taken as a whole and if the failure to so preserve or maintain
could not reasonably be expected to result in a Material Adverse Effect;
provided, further,

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however, that solely with respect to the South Texas Project, each Credit Party
shall only be required to comply with the foregoing covenant to the extent such
compliance is not prohibited or otherwise restricted by the terms of the STP
Operating Agreement or the STP Participation Agreement.

8.06 Maintenance of Existing Business. Each Credit Party shall
maintain and preserve, and cause each of its respective Subsidiaries to maintain
and preserve, its fundamental business of being a company and/or an owner
(directly or indirectly) and operator of power generation facilities; provided,
however, the foregoing shall not prohibit the Borrower from mothballing any of
its generating units from time to time in its reasonable commercial judgment, if
the operation of such units in the good faith judgment of the Borrower is
inadvisable or unnecessary to the business of the Borrower and its Subsidiaries,
taken as a whole and if mothballing such units could not reasonably be expected
to have a Material Adverse Effect; provided, further, however, that solely with
respect to the South Texas Project, each Credit Party shall only be required to
comply with the foregoing covenant to the extent such compliance is not
prohibited or otherwise restricted by the terms of the STP Operating Agreement
or the STP Participation Agreement.

8.07 Compliance with Statutes, Transaction Agreement etc.. (a) Each
Credit Party shall comply, and cause each of its Subsidiaries to comply, with
all applicable laws, rules, regulations and orders, such compliance to include,
without limitation, compliance with ERISA, Environmental Laws and Environmental
Permits, except to the extent the failure to so comply could not reasonably be
expected to have a Material Adverse Effect. Each Credit Party shall pay, or
cause to be paid, all costs and expenses incurred in connection with such
compliance, and shall keep or cause to be kept all Real Property free and clear
of any Liens imposed under Environmental Laws, except to the extent failure to
do so could not reasonably be expected to have a Material Adverse Effect.

(b) Each Credit Party shall comply, and cause each of its Subsidiaries
to comply, with all terms and conditions contained in the Transaction Agreement
and the Disclosure Letter, except to the extent the failure to so comply could
not reasonably be expected to have a Material Adverse Effect.

8.08 Visitation Rights. Each Credit Party shall, and shall cause each
of its Subsidiaries to, at any reasonable time and from time to time, permit up
to six representatives of the Lenders designated by the Required Lenders, or
representatives of the Agents, on not less than five (5) Business Days' notice,
to examine and make copies of and abstracts from the records and books of
account of, and visit the properties of, such Credit Party and each Subsidiary
of such Credit Party and to discuss the general business affairs of such Credit
Party and each of its Subsidiaries with their respective officers and
independent certified public accountants; subject, however, in all cases to the
imposition of such reasonable conditions as such Credit Party and each of its
Subsidiaries shall deem necessary based on reasonable considerations of safety
and security; provided, however, that no Credit Party nor any of its
Subsidiaries shall be required to disclose to any Agent, any Lender or any
agents or representatives thereof any information which is the subject of
attorney-client privilege or attorney work-product privilege properly asserted
by the applicable Person to prevent the loss of such privilege in connection
with such information or which is prevented from disclosure

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pursuant to a confidentiality agreement with third parties; provided, further,
however, that solely with respect to the South Texas Project, each Credit Party
shall only be required to comply with the foregoing covenant to the extent such
compliance is not prohibited or otherwise restricted by the terms of the STP
Operating Agreement or the STP Participation Agreement. Notwithstanding the
foregoing, none of the conditions precedent to the exercise of the right of
access described in the preceding sentence that relate to notice requirements or
limitations on the Persons permitted to exercise such right shall apply at any
time when a Default or an Event of Default shall have occurred.

8.09 Use of Proceeds. The Borrower shall use the proceeds of each
Loan as provided in Section 7.08.

8.10 Payment of Taxes. Each Credit Party shall pay and discharge, and
cause each of its Subsidiaries to pay and discharge, before the same shall
become delinquent, (i) all taxes, assessments and governmental charges or levies
imposed upon it or upon its property and (ii) all lawful claims that, if unpaid,
might become a Lien upon its property or unless the failure to pay could not
reasonably be expected to result in a Material Adverse Effect; provided,
however, that no Credit Party nor any of its Subsidiaries shall be required to
pay or discharge any such tax, assessment, charge or claim that is being
contested in good faith and by proper proceedings and as to which appropriate
reserves are being maintained in accordance with GAAP or unless the failure to
pay could not reasonably be expected to result in a Material Adverse Effect.

8.11 Further Assurances. (a) Each of the Credit Parties shall, and
shall cause each of its Subsidiaries to, at its own expense, make, execute,
endorse, acknowledge, file and/or deliver to the Collateral Agent from time to
time such vouchers, invoices, schedules, confirmatory assignments, conveyances,
financing statements, transfer endorsements, powers of attorney, certificates,
reports and other assurances or instruments and take such further steps relating
to the collateral covered by any of the Security Documents as the Collateral
Agent may reasonably require. Furthermore, the Credit Parties shall cause to be
delivered to the Collateral Agent such opinions of counsel and other related
documents as may be reasonably requested by the Administrative Agent to assure
themselves that this Section 8.11 has been complied with.

(b) Each of the Credit Parties shall, and shall cause each of its
Subsidiaries to, grant to the Collateral Agent for the benefit of the Lenders
security interests and/or mortgages in such assets, properties and Real Property
(including, without limitation, the assets, properties and Real Property
constituting the South Texas Project) of the Borrower and the other Credit
Parties as are not covered by the original Security Documents and as may be
reasonably requested by the Administrative Agent or the Required Lenders
(collectively, the "Additional Security Documents"). All such security interests
and/or mortgages shall be granted pursuant to documentation reasonably
satisfactory in form and substance to the Administrative Agent and the Required
Lenders and shall constitute valid and enforceable perfected security interests
and/or mortgage Liens superior to and prior to the rights of all third Persons
and subject to no other Liens except for Permitted Liens and such other Liens as
are reasonably acceptable to the Required Lenders. The Additional Security
Documents (including, without limitation, any mortgage relating to the South
Texas Project) or instruments related thereto shall have been duly recorded or
filed in such manner and in such places as are required by all applicable law to

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establish, perfect, preserve and protect the Liens in favor of the Collateral
Agent required to be granted pursuant to such Additional Security Documents and
all taxes, fees and other charges payable in connection therewith shall have
been paid in full by the Credit Parties.

(c) Each of the Credit Party agrees that each action required by
clauses (a) through (b) of this Section 8.11 shall be completed as soon as
possible, but in no event later than 60 days after such action is requested to
be taken by the Administrative Agent or the Required Lenders.

8.12 Future Guarantors. Each of the Credit Parties shall and shall
cause each of its Subsidiaries to promptly upon any Person becoming a direct or
indirect Subsidiary of the Parent to become a guarantor under the Guaranty by
executing an accession agreement in respect of this Agreement in form and
substance reasonably satisfactory to the Administrative Agent, provided that (x)
no such Subsidiary that is not a Domestic Subsidiary shall be required to become
a guarantor under the Guaranty, unless such Subsidiary shall at such time
guarantee any Indebtedness of the Parent or any Domestic Subsidiary and (y) STP
Nuclear Operating Company shall not be required to become a guarantor under the
Guaranty.

SECTION 9. Negative Covenants. Each Credit Party covenants and agrees
that on and after the Effective Date and until the Total Commitment has
terminated and the Loans, Notes (in each case together with interest thereon),
Fees and all other Obligations (other than indemnities described in Section
13.13 which are not then due and payable) incurred hereunder and thereunder, are
paid in full:

9.01 Liens. The Credit Parties shall not pledge, mortgage or
hypothecate, or permit to exist, and shall not permit any Subsidiary to pledge,
mortgage or hypothecate, or permit to exist, except in favor of the Borrower or
any Wholly-Owned Subsidiary of the Parent, any Lien upon, any Property at any
time owned by such Credit Party or a Subsidiary of such Credit Party; provided,
however, that this restriction shall not apply to or prevent the creation or
existence of any Permitted Lien.

9.02 Consolidation, Mergers or Disposal of Assets. The Credit Parties
shall not, and shall not permit any Subsidiary to, (i) consolidate with, or
merge into or amalgamate with or into, any other Person; (ii) liquidate, wind up
or dissolve itself (or suffer any liquidation or dissolution); (iii) convey,
sell, transfer, lease or otherwise dispose of all or any part of its assets
(other than sales of inventory, materials and equipment in the ordinary course
of business) to any Person, (iv) enter into any sale-leaseback transactions, or
(v) purchase or otherwise acquire (in one or a series of related transactions)
any part of the property or assets (other than purchases or other acquisitions
of inventory, materials and equipment, in each case in the ordinary course of
business) of any Person, or, in each case, permit any Subsidiary to do so;
provided, however, that nothing contained in this Section 9.02 shall prohibit
(A) the liquidation, winding up or dissolution of a Subsidiary of any Credit
Party if all of the assets of such Subsidiary are conveyed, transferred or
distributed to any other Credit Party; (B) the conveyance, sale, transfer, lease
or other disposal of all or substantially all (or any lesser portion) of the
assets of any Credit Party to any other Credit Party, (C) the sale of obsolete,
uneconomic or worn-out equipment, materials or other assets (other than real
property) in the ordinary course of business, (D) Investments to the extent
permitted by Section 9.04, (E) the lease (where the such Credit Party or

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its Subsidiary is the lessee) or license (as licensee) real or personal
property, in each case, in the ordinary course of business, (F) the granting of
licenses, sublicenses or leases or subleases to other Persons not materially
interfering with the conduct of the business of the Parent or any of its
Subsidiaries, in each case, in the ordinary course of business or (G) the
purchase of an increased interest in the South Texas Project in accordance with
Section 6.1(2) of the Disclosure Letter; provided, further, however, that solely
with respect to the South Texas Project, each Credit Party shall only be
required to comply with the foregoing covenant to the extent such compliance is
not prohibited or otherwise restricted by the terms of the STP Operating
Agreement or the STP Participation Agreement.

9.03 Accounting Changes. The Credit Parties shall not make or permit,
or permit any of its Subsidiaries to make or permit, any change in accounting
policies or reporting practices, except as required or permitted by GAAP.

9.04 Restrictions on Dividends, Intercompany Loans, or Investments.
The Credit Parties shall not, and shall not permit any of their Subsidiaries to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any such Subsidiary
to (a) pay dividends or make any other distributions on its capital stock or any
other interest or participation in its profits owned by the Borrower or any of
its Subsidiaries, or pay any Indebtedness owed to the Borrower or any of its
Subsidiaries, (b) make loans or advances to the Borrower or any of its
Subsidiaries or (c) transfer any of its properties or assets to the Borrower or
any of its Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of (i) applicable law, (ii) this Agreement, (iii) the other
Credit Documents, (iv) the Transaction Agreement and the Disclosure Letter, (v)
customary provisions restricting subletting or assignment of any lease governing
any leasehold interest of such Credit Party or any of its Subsidiaries, (vi)
customary provisions restricting assignment of any licensing agreement (in which
such Credit Party or any of its Subsidiaries is the licensee) or other contract
entered into by the Borrower or any of its Subsidiaries in the ordinary course
of business, (vii) customary provisions in partnership agreements, limited
liability company organizational governance documents, joint venture agreements
and other similar agreements that restrict the transfer of ownership interests
in, or assets of, a partnership, limited liability company or joint venture that
is a non-Wholly Owned Subsidiary of the Borrower, in each case, to the extent
existing on the Effective Date and (viii) restrictions and conditions existing
on the Effective Date any amendment or modification thereof (other than an
amendment or modification expanding the scope of any such restriction or
condition and any restrictions or conditions) that (x) replace restrictions or
conditions existing on the date hereof and (y) are substantially similar to such
existing restriction or condition; provided, that solely with respect to the
South Texas Project, each Credit Party shall only be required to comply with the
foregoing covenant to the extent such compliance is not prohibited or otherwise
restricted by the terms of the STP Operating Agreement or the STP Participation
Agreement.

9.05 Affiliate Transactions. The Credit Parties shall not, and shall
not permit any Subsidiary of such Credit Party to, make, directly or indirectly,
(i) any transfer, sale, lease or other disposition of any Property to any
Affiliate of such Credit Party or any Subsidiary of such Credit Party or any
purchase or acquisition of any Property from any such Affiliate; or (ii) any
other arrangement or transaction directly or indirectly with or for the benefit
of any such Affiliate (including without limitation, guaranties and assumptions
of obligations of any such

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Affiliate); provided, that (A) any Credit Party and their Subsidiaries may enter
into any arrangement or other transaction with any such Affiliate if the
monetary or business consideration arising therefrom would be substantially at
least as advantageous to such Credit Party or such Subsidiary as the monetary or
business consideration which would be obtained in a comparable arm's length
transaction with a Person not an Affiliate of such Credit Party or any
Subsidiary of such Credit Party and (B) the Credit Parties and their
Subsidiaries may enter into those transactions expressly contemplated by
Sections 6.1(5), (6) and (7) of the Disclosure Letter to the extent permitted
under the Transaction Agreement.

9.06 Restricted Payments. The Credit Parties shall not, and shall not
permit any Subsidiary of such Credit Party to, authorize, declare or pay any
Dividends except: (i) any Subsidiary of a Credit Party may pay cash Dividends to
such Credit Party or to any Wholly-Owned Subsidiary of such Credit Party (ii)
any non-Wholly-Owned Subsidiary of a Credit Party may pay cash Dividends to its
shareholders generally so long as such Credit Party and/or its respective
Subsidiaries which own Equity Interests in the Subsidiary paying such Dividends
receive at least their proportionate share thereof (based upon their relative
holdings of the Equity Interests in the Subsidiary paying such Dividends and
taking into account the relative preferences, if any, of the various classes of
Equity Interests of such Subsidiary) and (iii) the Credit Parties may pay
Dividends to CenterPoint Energy and its Subsidiaries solely to the extent
necessary to effect the payments described in clause (x) (ii) or (y) of Section
7.08.

9.07 Use of Proceeds; Regulation U. The Borrower shall not directly
or indirectly use the proceeds of any Borrowing (i) to purchase or carry, within
the meaning of Regulation U, any Margin Stock, (ii) to participate in any tender
offer for the securities of any Person, unless such tender offer has been
approved by the board of directors, general partners or other governing body of
such Person or (iii) for any purpose that would violate or result in a violation
of any law or regulation. No Credit Party shall, nor shall permit any of its
Subsidiaries to engage principally, or as one of its important activities, in
the business of extending credit for the purpose of purchasing or carrying,
within the meaning of Regulation U, any Margin Stock. No proceeds of any Loan
shall be used (i) except as provided in clause (x)(ii) of Section 7.08, to pay
any Dividend regardless of whether such Dividend is permitted pursuant to
Section 9.06 or elsewhere in this Agreement or (ii) in contravention of Section
6.1(1)(iii) of the Disclosure Letter or Section 7.08 of this Agreement.

9.08 Indebtedness. The Credit Parties shall not, and shall not permit
any Subsidiary of such Credit Party to, contract, create, incur, assume or
suffer to exist any Indebtedness, except: (i) Indebtedness incurred pursuant to
this Agreement and the other Credit Documents, (ii) existing Indebtedness
outstanding on the Effective Date (as reduced by any repayments of principal
thereof or reductions in the stated amount thereto with respect to letters of
credit) to the extent set forth on Schedule IV, without giving effect to any
subsequent extension, renewal or refinancing thereto, (iii) intercompany
Indebtedness among the Guarantors to the extent permitted by Section 9.09, (iv)
Indebtedness of the Borrower under hedging agreements providing protection to
the Borrower against fluctuations in commodity prices in connection with the
Borrower's operations so long as the entering into of such hedging agreements
are bona fide hedging activities and are not for speculative purposes and (v)
Indebtedness under the Existing Letters of Credit.

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9.09 Advances, Investments and Loans. The Credit Parties shall not,
and shall not permit any Subsidiary of such Credit Party to, directly or
indirectly, lend money or extend credit or make advances to any Person, or
purchase, acquire or hold any Equity Interests, obligations or securities of, or
any other interest in, or make any capital contribution to, any other Person, or
purchase or own a futures contract or otherwise become liable for the purchase
or sale of currency or other commodities at a future date in the nature of a
futures contract, or hold any cash or Cash Equivalents (each of the foregoing an
"Investment" and, collectively, "Investments"), except that the following shall
be permitted: (i) the Borrower and its Subsidiaries may acquire and hold
accounts receivables owing to any of them, if created or acquired in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms of the Borrower or such Subsidiary, (ii) the Borrower and
its Subsidiaries may acquire and hold cash and Cash Equivalents; (iii) the
Credit Parties and their Subsidiaries may hold the Investments held by them on
the Effective Date and described on Schedule VI, provided that any additional
Investments made with respect thereto shall be permitted only if independently
justified under the other provisions of this Section 9.09; (iv) the Credit
Parties and their Subsidiaries may make loans and advances to their officers,
employees and sales representatives for moving, relocation and travel expenses
and other similar expenditures, in each case in the ordinary course of business
in an aggregate amount not to exceed $1,000,000 at any time (determined without
regard to any write-downs or write-offs of such loans and advances); (v) the
Borrower and the Guarantors may make intercompany loans and advances between or
among one another, (vi) the Borrower and its Subsidiaries may enter into hedging
agreements to the extent permitted by Section 9.08(iv) and (vii) the Credit
Parties may own the Equity Interests of their respective Subsidiaries existing
on the Effective Date.

9.10 Modifications to the Transaction Agreement and STP Documents.
The Credit Parties shall not, and shall not permit, any modification or
amendment to the Transaction Agreement or any STP Document which could
reasonably be expected to (x) have a material adverse effect on the ability of
any Credit Party to perform its obligations under this Agreement or any other
Credit Document to which it is a party or (y) impair the rights of the
Collateral Agent or the Lenders in the Collateral or the perfection or priority
of the security interests granted or purported to be granted therein pursuant to
the Security Documents.

9.11 Business. (a) The Borrower shall not engage in any business
other than the business engaged in by the Borrower as of the Effective Date and
reasonable extensions thereof.

(b) Notwithstanding the foregoing or anything else in this Agreement
to the contrary, the Guarantors will not engage in any business or own any
significant assets or have any material liabilities other than (i) their
ownership of the Equity Interests of their respective Subsidiaries existing on
the Effective Date and activities reasonably attendant thereto; provided that
the Equity Interests of such Subsidiaries shall be pledged to the Collateral
Agent pursuant to the Pledge Agreement, (ii) those liabilities for which they
are responsible under this Agreement and the other Credit Documents to which
they are a party and (iii) the performance of their obligations, and the
incurrence or sufferance of any related liabilities under contracts or
agreements in existence on the Effective Date (including, without limitation,
the Transaction Agreement and their obligations in respect of the Existing
Letters of Credit), provided that the Guarantors may engage in those activities
that relate or are incidental to (x) the maintenance of

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their existence in compliance with applicable law and (y) legal, tax and
accounting matters in connection with any of the foregoing activities.

SECTION 10. Events of Default. Upon the occurrence of any of the
following specified events (each an "Event of Default"):

10.01 Payments. The Borrower shall fail (i) to pay any principal of
any Loan or Note when the same becomes due and payable; or the Borrower shall
fail to pay any interest on any Loan or Note or (ii) make any other payment of
fees or other amounts payable under this Agreement or any Note within five
Business Days after the same becomes due and payable; or

10.02 Representations, etc. Any representation or warranty made by or
on behalf of any Credit Party (or any of its officers) in this Agreement or any
other Credit Document shall prove to have been incorrect in any material respect
when made; or

10.03 Covenants. (i) any Credit Party shall fail to perform or
observe any term, covenant or agreement contained in Sections 8.01(d), 8.04,
8.06, 8.07(b) or 8.08, Section 9 or Section 14, or (ii) any Credit Party shall
fail to perform or observe any other term, covenant or agreement contained in
this Agreement or any other Credit Document (except as provided in Section
10.10) on its part to be performed or observed if such failure shall not have
been remedied within 30 days; or

10.04 Default Under Other Agreements. Any Credit Party or any of its
Subsidiaries shall fail to pay any principal of or premium or interest on any
Indebtedness for Borrowed Money that is outstanding in a principal amount of at
least $5,000,000 individually or in the aggregate (but excluding Indebtedness
outstanding hereunder) of such Credit Party or such Subsidiary (as the case may
be), when the same becomes due and payable (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise), and such failure shall
continue after the applicable grace period, if any, specified in the agreement
or instrument relating to such Indebtedness; or any other event shall occur or
condition shall exist under any agreement or instrument relating to any such
Indebtedness and shall continue after the applicable grace period, if any,
specified in such agreement or instrument, if the effect of such event or
condition is to accelerate, or to permit the acceleration of, the maturity of
such Indebtedness; or any such Indebtedness shall be declared to be due and
payable, or required to be prepaid or redeemed (other than by a regularly
scheduled required prepayment or redemption), purchased or defeased, or an offer
to prepay, redeem, purchase or defease such Indebtedness shall be required to be
made, in each case prior to the stated maturity thereof; or

10.05 Bankruptcy, etc. Any Credit Party or any of its Subsidiaries
shall generally not pay its debts as such debts become due, or shall admit in
writing its inability to pay its debts generally, or shall make a general
assignment for the benefit of creditors; or any proceeding shall be instituted
by or against such Credit Party or any of its Subsidiaries seeking to adjudicate
it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of it or its debts
under any law relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of a
receiver, trustee, custodian or other similar official for it or for any
substantial part of its property and, in the case of any such proceeding
instituted against it (but

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not instituted by it), either such proceeding shall remain undismissed or
unstayed for a period of 30 days, or any of the actions sought in such
proceeding (including, without limitation, the entry of an order for relief
against, or the appointment of a receiver, trustee, custodian or other similar
official for, it or for any substantial part of its property) shall occur; or
any Credit Party or any of its Subsidiaries shall take any action in furtherance
of, or indicating its consent to, approval of, or acquiescence in, any of the
acts described in this Section 10.05; or

10.06 Judgments. Judgments or orders for the payment of money in
excess of $5,000,000 individually or in the aggregate shall be rendered against
any Credit Party or any of its Subsidiaries and either (i) enforcement
proceedings shall have been commenced by any creditor upon such judgment or
order or (ii) there shall be any period of 30 consecutive days during which a
stay of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; or

10.07 Non-Monetary Judgments. Any non-monetary judgment or order
shall be rendered against any Credit Party or any of its Subsidiaries that could
be reasonably expected to have a Material Adverse Effect, and there shall be any
period of 10 consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect; or

10.08 Change of Control. For any reason, (i) CenterPoint Energy fails
to own, directly or indirectly, 100% of the economic interest in the Borrower or
(ii) CenterPoint Energy fails to own, directly or indirectly, 100% of the
outstanding shares of stock, Voting Stock or other ownership interests having
ordinary voting power (other than stock or such other ownership interests having
such power only by reason of the happening of a contingency) to elect directors
or other managers of the general partner of the Borrower or (iii) the Parent
fails to own, directly or indirectly, 100% of the economic interest in the
Borrower or (iv) the Parent fails to own 100% of the outstanding shares of
stock, Voting Stock or other ownership interests having ordinary voting power
(other than stock or such other ownership interests having such power only by
reason of the happening of a contingency) to elect directors or other managers
of the general partner of the Borrower (each of the foregoing, a "Change of
Control"); or

10.09 ERISA. Any Credit Party or any of its ERISA Affiliates shall
incur, or could be reasonably expected to incur, any liability in excess of
$50,000,000 individually or in the aggregate as a result of the occurrence of
any ERISA Event, or a Plan has an Unfunded Current Liability which, when added
to the aggregate amount of Unfunded Current Liabilities with respect to all
other Plans, could reasonably be expected to have a Material Adverse Effect, in
each case, if such liability or Unfunded Current Liability, as the case may be,
is not discharged, satisfied or otherwise reduced below the respective threshold
amounts described or set forth above in this Section 10.09 within 30 days from
the date such liability or Unfunded Current Liability, as the case may be,
exceeded such threshold amount; or

10.10 Security Documents. Any Security Document shall cease to be in
full force and effect in all material respects, or shall cease to give the
Collateral Agent (or its delegees, as the case may be) the Liens, rights, powers
and privileges purported to be created thereby in favor of the Collateral Agent
(or its delegees, as the case may be) or (b) any Credit Party shall default in
the due performance or observance of any term, covenant or agreement on

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its part to be performed or observed pursuant to any such Security Document and
such default shall continue beyond any cure or grace period specifically
applicable thereto pursuant to the terms of such Security Document; or

10.11 Guaranty. The Guaranty or any provision thereof shall cease to
be in full force and effect in all material respects, or any Guarantor or any
Person acting by or on behalf of such Guarantor shall deny or disaffirm such
Guarantor's obligations under any Guaranty;

then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Administrative Agent, upon the written request of
the Required Lenders, shall by written notice to the Borrower, take any or all
of the following actions, without prejudice to the rights of any Agent, any
Lender or the holder of any Note to enforce its claims against any Credit Party
(provided that, if an Event of Default specified in Section 10.05 shall occur
with respect to the Borrower, the result of which would occur upon the giving of
such written notice by the Administrative Agent to the Borrower as specified in
clauses (i) and (ii) below shall occur automatically without the giving of any
such notice): (i) declare the Total Commitment terminated, whereupon the
Commitment of each Lender shall forthwith terminate immediately and any
Commitment Commission and other Fees shall forthwith become due and payable
without any other notice of any kind; and (ii) declare the principal of and any
accrued interest in respect of all Loans and the Notes and all Obligations owing
hereunder and thereunder to be, whereupon the same shall become, forthwith due
and payable without presentment, demand, protect or other notice of any kind,
all of which are hereby waived by each Credit Party.

SECTION 11. Definitions and Accounting Terms.

11.01 Defined Terms. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):

"Additional Security Documents" shall have the meaning set forth in
Section 8.11(b).

"Administrative Agent" shall mean DBAG, in its capacity as
Administrative Agent for the Lenders hereunder, and shall include any successor
to the Administrative Agent appointed pursuant to Section 12.09.

"Affiliate" of any Person shall mean any other Person that, directly
or indirectly, Controls or is Controlled by or is under common Control with such
first Person.

"Agents" shall mean and include (i) the Administrative Agent, (ii) the
Collateral Agent and (iii) for the purposes of Sections 5, 12, 13.01, 13.12 and
13.15 only, the Syndication Agent.

"Agreement" shall mean this Credit Agreement, as modified,
supplemented, amended, restated, extended, renewed or replaced from time to
time.

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"Applicable Margin" shall mean a percentage per annum equal to in the
case of Loans (i) maintained as Base Rate Loans, 0.50%, and (B) maintained as
Eurodollar Loans, 1.50%.

"Assignment and Assumption Agreement" shall mean the Assignment and
Assumption Agreement substantially in the form of Exhibit H (appropriately
completed).

"Bankruptcy Code" shall mean Title 11 of the United States Code
entitled "Bankruptcy" as now or hereafter in effect or any successor thereto.

"Base Rate" shall mean the higher of (x) the Prime Lending Rate and
(y) 1/2 of 1% in excess of the overnight Federal Funds Rate.

"Base Rate Loan" shall mean each Loan designated or deemed designated
as such by the Borrower at the time of the incurrence thereof or conversion
thereto.

"Board" shall mean the Board of Governors of the Federal Reserve
System of the United States (or any successor).

"Borrowed Money" of any Person shall mean any Indebtedness of such
Person for or in respect of money borrowed or raised by whatever means
(including acceptances, deposits and lease obligations under Capital Leases);
provided, however, that Borrowed Money shall not include (a) any guarantees that
may be incurred by endorsement of negotiable instruments for deposit or
collection in the ordinary course of business or similar transactions, (b) any
obligations or guarantees of performance of obligations under a franchise,
performance bonds, franchise bonds, obligations to reimburse drawings under
letters of credit issued in accordance with the terms of any safe harbor lease
or franchise or in lieu of performance or in lieu of franchise bonds or other
obligations that do not represent money borrowed or raised, which reimbursement
obligations in each case shall be payable in full within ten (10) Business Days
after the date upon which such obligation arises, (c) trade payables, (d)
customer advance payments and deposits arising in the ordinary course of such
Person's business, (e) operating leases and (f) obligations under swap
agreements.

"Borrower" shall have the meaning provided in the first paragraph of
this Agreement.

"Borrowing" shall mean the incurrence of one Type of Loan by the
Borrower from all of the Lenders on a pro rata basis on a given date (or
resulting from conversions on a given date), having in the case of Eurodollar
Loans the same Interest Period; provided that Base Rate Loans incurred pursuant
to Section 1.10(b) shall be considered part of any related Borrowing of
Eurodollar Loans.

"Business Day" shall mean (i) for all purposes other than as covered
by clause (ii) below, any day except Saturday, Sunday and any day which shall be
in New York City a legal holiday or a day on which banking institutions are
authorized or required by law or other government action to close and (ii) with
respect to all notices and determinations in connection with, and payments of
principal and interest on, Eurodollar Loans, any day which is a Business

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Day described in clause (i) above and which is also a day for trading by and
between banks in the New York interbank Eurodollar market.

"Capital Lease" shall mean a lease that, in accordance with GAAP,
would be recorded as a capital lease on the balance sheet of the lessee.

"Cash Collateral Agreements" shall mean each of (i) the Cash
Collateral Agreement, dated as of December 10, 2004, between the Borrower and
DBAG, as same may be modified, supplemented or amended from time to time and
(ii) the Cash Collateral Agreement, dated as of December 10, 2004, between the
Borrower and Citibank, in each case, as same may be modified, supplemented or
amended from time to time.

"Cash Equivalents" shall mean (i) securities issued or directly and
fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof) having maturities of not more
than one year from the date of acquisition, (ii) U.S. dollar denominated time
deposits, certificates of deposit and bankers acceptances of (x) any Lender and
(y) any bank which has, or whose parent company has, a short-term commercial
paper rating from S&P of at least A-1 or the equivalent thereof or from Moody's
of at least P-1 or the equivalent thereof (any such bank or Lender, an "Approved
Lender"), in each case with maturities of not more than one year from the date
of acquisition, (iii) commercial paper issued by any Approved Lender or by the
parent company of any Approved Lender and commercial paper issued by, or
guaranteed by, any company with a short-term commercial paper rating of at least
A-1 or the equivalent thereof by S&P or at least P-1 or the equivalent thereof
by Moody's, or guaranteed by any company with a long term unsecured debt rating
of at least A or A2, or the equivalent of each thereof, from S&P or Moody's, as
the case may be, and in each case maturing within six months after the date of
acquisition, (iv) marketable direct obligations issued by any state of the
United States of America or any political subdivision of any such state or any
public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either S&P or Moody's and (v) investments in
money market funds substantially all the assets of which are comprised of
securities of the types described in clauses (i) through (iv) above.

"Collateral" shall mean all "Collateral" as defined in the Pledge
Agreement.

"Collateral Agent" shall mean Deutsche Bank AG New York Branch, in its
capacity of collateral agent under the Credit Documents.

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"Commitment" shall mean, for each Lender, the amount set forth
opposite such Lender's name in Schedule I hereto directly below the column
entitled "Commitment," as same may be (x) terminated pursuant to Sections 3.03
and/or 10 or (y) adjusted from time to time as a result of assignments to or
from such Lender pursuant to Section 13.04(b).

"Commitment Termination Date" shall mean the earlier (x) the date
occurring 90 days after the Effective Date and (y) the Maturity Date.

"Consolidated" refers to the consolidation of accounts in accordance
with GAAP.

"Controlled" shall mean, with respect to any Person, the ability of
another Person (whether directly or indirectly and whether by the ownership of
voting securities, contract or otherwise) to appoint and/or remove the majority
of the members of the board of directors or other governing body of that Person
(and "Control" and "Controls" shall be similarly construed).

"Credit Documents" shall mean this Agreement (including, without
limitation, the Guaranty), the Notes, the Security Documents, and all other
documents executed in connection herewith and therewith, including, without
limitation, each Notice of Borrowing.

"Credit Event" shall mean the making of any Loan.

"Credit Party" shall mean the Borrower and each Guarantor.

"DBAG" shall mean Deutsche Bank AG New York Branch, in its individual
capacity.

"Default" shall mean any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.

"Defaulting Lender" shall mean any Lender with respect to which a
Lender Default is in effect.

"Disclosure Letter" shall mean the disclosure letter, dated July 21,
2004, delivered by Parent to the Buyer in connection with the Transaction
Agreement.

"Dividend" shall mean, with respect to any Person, that such Person
has declared or paid a dividend, distribution or returned any equity capital to
its stockholders, partners or members or authorized or made any other
distribution, payment or delivery of property (other than common equity of such
Person) or cash to its stockholders, partners or members as such, or redeemed,
retired, purchased or otherwise acquired, directly or indirectly, for
consideration any Equity Interests, or set aside any funds for any of the
foregoing purposes, or shall have permitted any of its Subsidiaries to purchase
or otherwise acquire for consideration any Equity Interests of such Person.

"Dollars" and the sign "$" shall each mean freely transferable lawful
money of the United States.

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"Domestic Subsidiary" shall mean each Subsidiary of the Parent that is
incorporated or organized in the United States, any State or territory thereof
or the District of Columbia or which is treated as a partnership by the Parent
or any Domestic Subsidiary thereof or a disregarded entity pursuant to the
provisions of Treasury Regulations Section 301.7701-3.

"Effective Date" shall have the meaning provided in Section 13.10.

"Eligible Transferee" shall mean and include a commercial bank, a
financial institution, any fund that regularly invests in bank loans or other
"accredited investor" (as defined in Regulation D of the Securities Act) but in
any event excluding the Borrower and its Subsidiaries.

"Environmental Action" shall mean any action, suit, demand, demand
letter, claim, notice of non-compliance or violation, notice of liability or
potential liability, investigation, proceeding, consent order or consent
agreement relating in any way to any Environmental Law, Environmental Permit or
Hazardous Materials or arising from alleged injury or threat of injury to
health, safety or the environment, including, without limitation, (a) by any
governmental or regulatory authority for enforcement, cleanup, removal,
response, remedial or other actions or damages and (b) by any governmental or
regulatory authority or any third party for damages, contribution,
indemnification, cost recovery, compensation or injunctive relief.

"Environmental Law" shall mean any federal, state, local or foreign
statute, law, ordinance, rule, regulation, code, order, judgment, rule of common
law, decree or judicial or agency interpretation, policy or guidance having the
force of law relating to pollution or protection of the environment, health,
safety or natural resources, including, without limitation, those relating to
the use, handling, transportation, treatment, storage, disposal, release or
discharge of Hazardous Materials.

"Equity Interests" shall mean any capital stock, partnership, joint
venture, member or limited liability or unlimited liability company interest,
beneficial interest in a trust or similar entity or other equity interest or
investment of whatever nature.

"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and rulings
issued thereunder.

"ERISA Affiliate" shall mean any Person that for purposes of Title IV
of ERISA is a member of the Borrower's controlled group, or under common control
with the Borrower, within the meaning of Section 414 of the Internal Revenue
Code.

"ERISA Event" shall mean (a) (i) the occurrence of a reportable event,
within the meaning of Section 4043 of ERISA, with respect to any Plan unless the
30-day notice requirement with respect to such event has been waived by the
PBGC, or (ii) the requirements of subsection (1) of Section 4043(b) of ERISA
(without regard to subsection (2) of such Section) are met with respect to a
contributing sponsor, as defined in Section 4001(a)(13) of ERISA, of a Plan, and
an event described in paragraph (9), (10), (11), (12) or (13) of Section 4043(c)
of

-35-

ERISA is reasonably expected to occur with respect to such Plan within the
following 30 days; (b) the application for a minimum funding waiver with respect
to a Plan; (c) the provision by the administrator of any Plan of a notice of
intent to terminate such Plan pursuant to Section 4041(a)(2) of ERISA (including
any such notice with respect to a plan amendment referred to in Section 4041(e)
of ERISA); (d) the cessation of operations at a facility of the Borrower or any
ERISA Affiliate in the circumstances described in Section 4062(e) of ERISA; (e)
the withdrawal by the Borrower or any ERISA Affiliate from a Multiple Employer
Plan during a plan year for which it was a substantial employer, as defined in
Section 4001(a)(2) of ERISA; (f) the conditions for the imposition of a lien
under Section 302(f) of ERISA or Section 412(n) of the Internal Revenue Code
shall have been met with respect to any Plan; (g) the adoption of an amendment
to a Plan requiring the provision of security to such Plan pursuant to Section
307 of ERISA; (h) the institution by the PBGC of proceedings to terminate a Plan
pursuant to Section 4042 of ERISA, or the occurrence of any event or condition
described in Section 4042 of ERISA that constitutes grounds for the termination
of, or the appointment of a trustee to administer, a Plan; (i) using actuarial
assumptions and computation methods consistent with Part 1 of subtitle E of
Title IV of ERISA, the aggregate liabilities of the Borrower and its ERISA
Affiliates to all Multiemployer Plans in the event of a complete withdrawal
therefrom, as of the close of the most recent fiscal year of each such
Multiemployer Plan ended prior to the date of the most recent Credit Event,
exceed $50,000,000; (j) the partial or complete withdrawal of the Borrower or
any of its ERISA Affiliates from a Multiemployer Plan; and (k) the
reorganization or termination of a Multiemployer Plan.

"Eurodollar Loan" shall mean each Loan designated as such by the
Borrower at the time of the incurrence thereof or conversion thereto.

"Eurodollar Rate" shall mean with respect to each Interest Period for
a Eurodollar Loan, (i) the arithmetic average (rounded to the nearest 1/100 of
1%) of the offered quotation to first-class banks in the New York interbank
Eurodollar market by DBAG for U.S. dollar deposits of amounts in same day funds
comparable to the outstanding principal amount of the Eurodollar Loan of DBAG
for which an interest rate is then being determined with maturities comparable
to the Interest Period to be applicable to such Eurodollar Loan, determined as
of 10:00 A.M. (New York City time) on the Interest Determination Date for such
Interest Period divided (and rounded upward to the next whole multiple of 1/16
of 1%) by (ii) a percentage equal to 100% minus the then stated maximum rate of
all reserve requirements (including, without limitation, any marginal,
emergency, supplemental, special or other reserves) applicable to any member
bank of the Federal Reserve System in respect of Eurocurrency liabilities as
defined in Regulation D (or any successor category of liabilities under
Regulation D).

"Existing LC Issuers" shall mean each of DBAG and Citibank in their
respective capacities as letter of credit issuers in respect of the Existing
Letter of Credits issued by them.

"Existing Letters of Credit" shall mean the letters of credit issued
by (x) DBAG and (y) Citibank, in each case, in connection with the Borrower's
acquisition of an increased ownership interest in the South Texas Project, each
in an initial stated amount of $91,047,482.

"Federal Funds Rate" shall mean for any period, a fluctuating interest
rate equal for each day during such period to the weighted average of the rates
on overnight Federal Funds transactions with members of the Federal Reserve
System arranged by Federal Funds brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for such day on such
transactions received by the Administrative Agent from three Federal Funds
brokers of recognized standing selected by the Administrative Agent.

"Fees" shall mean all amounts payable pursuant to or referred to in
Section 3.01.

"GAAP" shall have the meaning specified in Section 11.02.

"Genco GP" shall have the meaning provided in the first paragraph of
this Agreement.

"Genco LP" shall have the meaning provided in the first paragraph of
this Agreement.

"Governmental Authority" shall mean any nation or government, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.

"Guarantee" shall mean, as to any Person (the "guaranteeing person"),
any obligation of (a) the guaranteeing person or (b) another Person (including,
without limitation, any bank under any letter of credit) to induce the creation
of which the guaranteeing person has issued a reimbursement, counterindemnity or
similar obligation, in either case guaranteeing or in effect guaranteeing any
principal of any Indebtedness for Borrowed Money (the "primary obligations") of
any other third Person in any manner, whether directly or indirectly, including,
without limitation, any obligation of the guaranteeing person, whether or not
contingent, (i) to purchase any such primary obligation or any property
constituting direct or indirect security therefor, (ii) to advance or supply
funds for the purchase or payment of any such primary obligation or (iii)
otherwise to assure or hold harmless the owner of any such primary obligation
against loss in respect thereof. The amount of any Guarantee of any guaranteeing
person shall be deemed to be the lower of (a) an amount equal to the stated or
determinable amount of the primary obligation in respect of which such Guarantee
is made and (b) the maximum amount for which such guaranteeing person may be
liable pursuant to the terms of the instrument embodying such Guarantee, unless
such primary obligation and the maximum amount for which such guaranteeing
person may be liable are not stated or determinable, in which case the amount of
such Guarantee shall be such guaranteeing person's maximum reasonably
anticipated liability in

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respect thereof as determined by the Borrower in good faith (and "guaranteed"
and "guarantor" shall be construed accordingly).

"Guaranteed Creditors" shall mean and include each Agent and each
Lender.

"Guaranteed Obligations" shall mean the full and prompt payment when
due (whether at the stated maturity, by acceleration or otherwise) of all
obligations, liabilities and indebtedness (including, without limitation, all
principal, premium, interest (including, without limitation, all interest that
accrues after the commencement of any case, proceeding or other action relating
to the bankruptcy, insolvency, reorganization or similar proceeding of the
Borrower or any Subsidiary thereof at the rate provided for in the respective
documentation, whether or not a claim for post-petition interest is allowed in
any such proceeding), fees, costs and indemnities) of the Borrower to the
Guaranteed Creditors, whether now existing or hereafter incurred under, arising
out of, or in connection with, this Agreement and the other Credit Documents and
the due performance and compliance by each Borrower with all of the terms,
conditions and agreements contained in this Agreement and in the other Credit
Documents.

"Guarantor" shall mean each of the Parent, Genco GP, Genco Services
and Genco LP and any other Person required to become a guarantor under the
Guaranty from time to time as contemplated by Section 8.12 of this Agreement.

"Guaranty" shall mean the guaranty of the Guarantors pursuant to
Section 14 of this Agreement.

"Hazardous Materials" shall mean (a) petroleum and petroleum products,
byproducts or breakdown products, radioactive materials, asbestos-containing
materials, polychlorinated biphenyls and radon gas and (b) any other chemicals,
materials or substances designated, classified or regulated as hazardous or
toxic or as a pollutant or contaminant under any Environmental Law.

"Highest Lawful Rate" shall mean, with respect to each Lender, the
Administrative Agent and the Documentation Agent, the maximum nonusurious
interest rate, if any, that at any time or from time to time may be contracted
for, taken, reserved, charged or received with respect to any Loan or on other
amounts, if any, due to such Person pursuant to this Agreement or any other
Credit Document under applicable law. "Applicable law" as used in this
definition means, with respect to each Lender, the Administrative Agent and the
Documentation Agent, that law in effect from time to time that permits the
charging and collection by such Person of the highest permissible lawful,
nonusurious rate of interest on the transactions herein contemplated under the
laws of Texas.

"Indebtedness" shall mean, as to any Person, without duplication, (i)
all indebtedness (including principal, interest, fees and charges) of such
Person for borrowed money or for the deferred purchase price of property or
services, (ii) the maximum amount available to be drawn under all letters of
credit, bankers' acceptances and similar obligations issued for the account of
such Person and all unpaid drawings in respect of such letters of credit,
bankers' acceptances and similar obligations, (iii) all Indebtedness of the
types described in clause (i), (ii), (iv), (v), (vi) or (vii) of this definition
secured by any Lien on any property owned by such

-38-

Person, whether or not such Indebtedness has been assumed by such Person
(provided that, if the Person has not assumed or otherwise become liable in
respect of such Indebtedness, such Indebtedness shall be deemed to be in an
amount equal to the lesser of the aggregate amount of such Indebtedness and the
fair market value of the property to which such Lien relates as determined in
good faith by such Person), (iv) the aggregate amount of all capitalized lease
obligations of such Person, (v) all obligations of such Person to pay a
specified purchase price for goods or services, whether or not delivered or
accepted that are in the nature of take-or-pay and similar obligations, (vi) all
Guarantees of such Person and (vii) all obligations under any interest rate
protection agreement, any hedging agreement, any swap agreement or under any
similar type of agreement respecting interest rate risk. Notwithstanding the
foregoing, Indebtedness shall not include trade payables and accrued expenses
incurred by any Person in accordance with customary practices and in the
ordinary course of business of such Person.

"Intercreditor Agreement" shall have the meaning specified in Section
5.05(b).

"Interest Determination Date" shall mean, with respect to any
Eurodollar Loan, the second Business Day prior to the commencement of any
Interest Period relating to such Eurodollar Loan.

"Interest Period" shall have the meaning provided in Section 1.09.

"Internal Revenue Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time, and the regulations promulgated and rulings issued
thereunder.

"Investment" shall have the meaning set forth in Section 9.09.

"Leaseholds" of any Person shall mean all of the right, title and
interest of such Person as lessee or licensee in, to and under leases or
licenses of land, improvements and/or fixtures.

"Lender" shall mean each financial institution listed on Schedule I,
as well as any Person which becomes a "Lender" hereunder pursuant to Section
13.04(b).

"Lender Default" shall mean (i) the refusal (which has not been
retracted) or the failure of a Lender to make available its pro rata portion of
any Borrowing or (ii) a Lender having notified in writing the Borrower and/or
the Administrative Agent that it does not intend to comply with its obligations
under Section 1.01, in the case of either clause (i) or (ii) above as a result
of the appointment of a receiver or conservator with respect to such Lender at
the direction or request of any regulatory agency or authority.

"Material Adverse Change" shall mean any material adverse change in
the business, condition (financial or otherwise), operations, performance or
properties of the Parent, the Borrower, the Parent and its Subsidiaries taken as
a whole, or the Borrower and its Subsidiaries taken as a whole; provided that
the consummation of the transactions contemplated by the Transaction Agreement
shall not constitute a "Material Adverse Change" to the extent such transactions
are consummated in accordance with, and subject to the terms and conditions of,
the Transaction Agreement.

"Material Adverse Effect" shall mean a material adverse effect on the
ability of any Credit Party to perform its obligations under this Agreement or
any other Credit Document to which it is a party; provided that the consummation
of the transactions contemplated by the Transaction Agreement shall not
constitute a "Material Adverse Effect" to the extent such transactions are
consummated in accordance with, and subject to the terms and conditions of, the
Transaction Agreement.

"Maturity Date" shall mean the earlier of (x) date occurring 180 days
after the Effective Date and (y) the STP Acquisition Date.

"Minimum Borrowing Amount" shall mean an amount equal to $5,000,000.

"Moody's" shall mean Moody's Investors Service, Inc.

"Multiemployer Plan" shall mean a multiemployer plan, as defined in
Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA Affiliate is
making or accruing an obligation to make contributions, or has within any of the
preceding five plan years made or accrued an obligation to make contributions.

"Multiple Employer Plan" shall mean a single employer plan, as defined
in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of, or is
contributed to (or to which there is an obligation to contribute of) by, the
Borrower or any ERISA Affiliate and at least one Person other than the Borrower
and the ERISA Affiliates or (b) was so maintained, or contributed to by, and in
respect of which the Borrower or any ERISA Affiliate could have liability under
Section 4064 or 4069 of ERISA in the event such plan has been or were to be
terminated.

"Non-Defaulting Lender" shall mean and include each Lender other than
a Defaulting Lender.

"Note" shall have the meaning provided in Section 1.05(a).

"Notice of Borrowing" shall have the meaning provided in Section 1.03.

"Notice of Conversion/Continuation" shall have the meaning provided in
Section 1.06.

other office as the Administrative Agent may hereafter designate in writing as
such to the other parties hereto.

"Obligation" shall mean, with respect to any Person, any payment,
performance or other obligation of such Person of any kind, including, without
limitation, any liability of such Person on any claim, whether or not the right
of any creditor to payment in respect of such claim is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, disputed, undisputed,
legal, equitable, secured or unsecured, and whether or not claim is discharged,
stayed or otherwise affected by any proceeding referred to in Section 10.05.
Without limiting the generality of the foregoing, the Obligations of any Credit
Party under each Credit Document to which it is a party include (a) the
obligation to pay principal, interest, charges, expenses, fees, attorneys' fees
and disbursements, indemnities and other amounts payable by such Credit Party
under any Credit Document and (b) the obligation of such Credit Party to
reimburse any amount in respect of any of the foregoing that any Lender, in its
sole discretion, may elect to pay or advance on behalf of such Credit Party.

"Parent" shall have the meaning provided in the first paragraph of
this Agreement.

"Payment Office" shall mean the office of the Administrative Agent
located at 90 Hudson Street, Fifth Floor, Jersey City, New Jersey 07302, or such
other office as the Administrative Agent may hereafter designate in writing as
such to the other parties hereto.

"Percentage" of any Lender at any time shall mean a fraction
(expressed as a percentage) the numerator of which is the Commitment of such
Lender at such time and the denominator of which is the Total Commitment at such
time, provided that if the Percentage of any Lender is to be determined after
the Total Commitment has been terminated, then the Percentages of the Lenders
shall be determined immediately prior (and without giving effect) to such
termination.

"Permitted Liens" shall mean:

(a) undetermined or inchoate Liens and charges incidental to
construction, maintenance, development or operation;

(b) the Lien of taxes and assessments for the then current year,
the Lien of taxes and assessments not at the time delinquent and the
Lien of specified taxes and assessments which are delinquent but the
validity of which is being contested at the time by the Parent or such
Subsidiary of the Parent in good faith and by appropriate proceedings
or for which its non-payment could not reasonably be expected to have
a Material Adverse Effect;

(c) Liens in existence on the date hereof to the extent set forth
on Schedule VII;

-41-

(d) the Lien reserved in leases for rent and for compliance with
the terms of the lease in the case of leasehold estates;

(e) any obligations or duties, affecting the property of the
Parent or such Subsidiary, to any municipality or public authority
with respect to any franchise, grant, license, permit or similar
arrangement;

(f) the Liens of any judgments or attachments in an aggregate
amount not in excess of $30,000,000, or the Lien of any judgment or
attachment the execution or enforcement of which has been stayed or
which has been appealed and secured, if necessary, by the filing of an
appeal bond;

(g) mechanics' or materialmen's Liens, any Liens or charges
arising by reason of pledges or deposits to secure payment of
workmen's compensation or other insurance, good faith deposits in
connection with tenders, leases of real estate, bids or contracts
(other than contracts for the payment of money), deposits to secure
duties or public or statutory obligations, deposits to secure, or in
lieu of, surety, stay or appeal bonds, and deposits as security for
the payment of taxes or assessments or similar charges;

(h) any Lien arising by reason of deposits with, or the giving of
any form of security to, any governmental regulation for any purpose
at any time in connection with the financing of the acquisition or
construction of property to be used in the business of the Parent or a
Subsidiary or as required by law or governmental regulation as a
condition to the transaction of any business or the exercise of any
privilege or license, or to enable the Parent or a Subsidiary to
maintain self-insurance or to participate in any funds established to
cover any insurance risks or in connection with workmen's
compensation, unemployment insurance, old age pensions or other social
security, or to share in the privileges or benefits required for
companies participating in such arrangements;

(j) Liens on cash collateral to secure obligations of the Parent
and its Subsidiaries in respect of cash management arrangements with
any Lender or Affiliate thereof;

(k) Liens on cash and short-term investments (i) deposited by the
Borrower or any of its Subsidiaries in accounts with or on behalf of
futures contract brokers or other counterparties or (ii) pledged by
the Parent or any of its Subsidiaries, in the case of clause (i) or
(ii) to secure its obligations with respect to contracts (including
without limitation, physical delivery, option (whether cash or
financial), exchange, swap and futures contracts) for the purchase or
sale of

-42-

any energy-related commodity or interest rate or currency rate
management contracts; or

(l) Liens on the assets and property constituting the South Texas
Project, existing on the date the South Texas Project becomes a
Subsidiary of a Credit Party; provided that such Liens were not
created in anticipation of the South Texas Project becoming a
Subsidiary of such Credit Party.

"Person" shall mean an individual, partnership, corporation (including
a business trust), joint stock company, trust, unincorporated association, joint
venture, limited liability company or other entity, or a government or any
political subdivision or agency thereof.

"Plan" shall mean a Single Employer Plan or a Multiple Employer Plan.

"Pledge Agreement" shall have the meaning provided in Section 5.05(a).

"Prime Lending Rate" shall mean the rate which DBAG announces from
time to time as its prime lending rate, the Prime Lending Rate to change when
and as such prime lending rate changes. The Prime Lending Rate is a reference
rate and does not necessarily represent the lowest or best rate actually charged
to any customer. DBAG may make commercial loans or other loans at rates of
interest at, above or below the Prime Lending Rate.

"Projections" shall have the meaning provided in Section 5.09.

"Property" shall mean any interest or right in any kind of property or
asset, whether real, personal or mixed, owned or leased, tangible or intangible
and whether now held or hereafter acquired.

"Pro Rata Share" shall have the meaning provided in Section 14.07(b).

"Quarterly Payment Date" shall mean the last Business Day of each
March, June, September and December, occurring after the Effective Date.

"Real Property" of any Person shall mean all of the right, title and
interest of such Person in and to land, improvements and fixtures, including
Leaseholds.

"Register" shall have the meaning provided in Section 13.16.

"Regulation D" shall mean Regulation D of the Board as from time to
time in effect and any successor to all or a portion thereof establishing
reserve requirements.

"Regulation T" and "Regulation U" shall mean Regulation T and U,
respectively, of the Board, in each case, as from time to time in effect and any
successor to all or a portion thereof.

than 50% of the Total Commitment less the Commitments of all Defaulting Lenders
(or after the termination thereof, the sum of the then total outstanding Loans
of Non-Defaulting Lenders).

"Responsible Officer" shall mean, with respect to any Person, its
chief financial officer, chief accounting officer, assistant treasurer,
treasurer or comptroller of such Person or any other officer of such Person
whose primary duties are similar to the duties of any of the previously listed
officers of such Person.

"Security Documents" shall mean the Pledge Agreement, each Cash
Collateral Agreement, the Intercreditor Agreements, and each other collateral
document or instrument entered into pursuant to Section 5.05 and after the
execution and delivery thereof, each Additional Security Document, if any, in
each case as and when delivered in accordance with this Agreement as same may be
amended, modified or supplemented from time to time in accordance with the terms
thereof and/or hereof.

"Single Employer Plan" shall mean a single employer plan, as defined
in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of, or is
contributed to (or to which there is an obligation to contribute of) by, the
Borrower or any ERISA Affiliate and no Person other than the Borrower and the
ERISA Affiliates, or (b) was so maintained, or contributed to by, and in respect
of which the Borrower or any ERISA Affiliate could have liability under Section
4069 of ERISA in the event such plan has been or were to be terminated.

"Solvent" shall mean, with respect to any Person on a particular date,
that on such date (a) the fair value of the property of such Person is greater
than the total amount of liabilities, including, without limitation, contingent
liabilities, of such Person, (b) the present fair salable value of the assets of
such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person does not intend to, and does not believe that it will,
incur debts or liabilities beyond such Person's ability to pay such debts and
liabilities as they mature and (d) such Person is not engaged in business or a
transaction, and is not about to engage in business or a transaction, for which
such Person's property would constitute an unreasonably small capital. The
amount of contingent liabilities at any time shall be computed as the amount
that, in the light of all the facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become an actual or
matured liability.

"STP Acquisition" shall have the meaning provided in the Transaction
Agreement.

"STP Acquisition Date" shall mean the earlier of (x) the date upon
which the STP Acquisition is consummated and (y) the date upon which any
material portion of the interests in the South Texas Project owned directly or
indirectly by the Parent and/or any of its Subsidiaries is sold, transferred or
otherwise disposed to any other Person.

"STP Operating Agreement" shall mean the Operating Agreement, dated as
of November 17, 1997, among City of San Antonio, Central Power and Light
Company, Houston Lighting and Power Company, the City of Houston and STP Nuclear
Operating Company as may be amended from time to time in accordance with the
terms thereof.

"STP Participation Agreement" shall mean the Amended and Restated
South Texas Project Participation Agreement, dated as of November 17, 1997,
among City of San Antonio, Central Power and Light Company, Houston Lighting and
Power Company and the City of Houston as may be amended from time to time in
accordance with the terms thereof.

"Subsidiary" of any Person shall mean any corporation, partnership,
joint venture, limited liability company, trust or estate of which (or in which)
more than 50% of (a) the issued and outstanding capital stock having ordinary
voting power to elect a majority of the Board of Directors of such corporation
(irrespective of whether at the time capital stock of any other class or classes
of such corporation shall or might have voting power upon the occurrence of any
contingency), (b) the interest in the capital or profits of such limited
liability company, partnership, joint venture or other Person or (c) the
beneficial interest in such trust or estate is at the time directly or
indirectly owned or controlled by such Person, by such Person and one or more of
its other Subsidiaries or by one or more of such Person's other Subsidiaries.

"Total Commitment" shall mean, at any time, the sum of the Commitments
of each of the Lenders at such time.

"Total Unutilized Commitment" shall mean, at any time, an amount equal
to the remainder of (i) the Total Commitment then in effect, less (ii) the
aggregate principal amount of Loans outstanding at such time.

"Transaction Agreement" shall mean that certain Transaction Agreement,
dated as of July 21, 2004, among CenterPoint Energy, Utility Holding, LLC, NN
Houston Sub, Inc., the Parent, HPC Merger Sub, Inc. and the Buyer and shall
include all exhibits thereto, in each case, as previously delivered to the
Lenders and as may be amended from time to time in accordance with the terms
thereof and with the terms of this Agreement.

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"Type" shall mean the type of Loan determined with regard to the
interest option applicable thereto, i.e., whether a Base Rate Loan or a
Eurodollar Loan.

"UCC" shall mean the Uniform Commercial Code as from time to time in
effect in the relevant jurisdiction.

"Unfunded Current Liability" of any Plan shall mean the amount, if
any, by which the value of the accumulated plan benefits under the Plan
determined on a plan termination basis in accordance with actuarial assumptions
at such time consistent with those prescribed by the PBGC for purposes of
Section 4044 of ERISA, exceeds the fair market value of all plan assets
allocable to such liabilities under Title IV of ERISA (excluding any accrued but
unpaid contributions).

"United States" and "U.S." shall each mean the United States of
America.

"Unutilized Commitment" with respect to any Lender, at any time, shall
mean such Lender's Commitment at such time less the aggregate outstanding
principal amount of Loans made by such Lender at such time.

"Voting Stock" shall mean capital stock issued by a corporation, or
equivalent interests in any other Person, the holders of which are ordinarily,
in the absence of contingencies, entitled to vote for the election of directors
(or persons performing similar functions) of such Person, even if the right so
to vote has been suspended by the happening of such a contingency.

"Wholly-Owned" shall mean, with respect to any Subsidiary of any
Person, a Subsidiary, all the outstanding capital stock (other than directors'
qualifying shares required by law) or other ownership interest of which are at
the time owned by such Person or by one or more Wholly-Owned Subsidiaries of
such Person, or both.

11.02 Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with generally accepted accounting
principles in effect from time to time in the United States of America ("GAAP");
provided that, if the Borrower notifies the Administrative Agent that the
Borrower requests an amendment to any provision of the Credit Documents to
eliminate the effect of any change occurring after the date hereof in GAAP or in
the application thereof or in federal or foreign tax laws which adversely
affects any of the Borrower and its Subsidiaries' ability to comply with its
obligations under the Credit Documents, regardless of whether any such notice is
given before or after such change or in the application thereof, then such
provision shall be interpreted on the basis of GAAP or such tax laws as in
effect and applied immediately before such change shall have become effective
until such notice shall have been withdrawn or such provision amended in
accordance herewith.

SECTION 12. The Agents.

12.01 Appointment. The Lenders hereby designate (i) DBAG as
Administrative Agent and Collateral Agent to act as specified herein and in the
other Credit Documents and (ii) Citibank, N.A., as Syndication Agent, in each
case to act as specified herein and in the other Credit Documents. Each Lender
hereby irrevocably authorizes, and each holder of any Note by the acceptance of
such Note shall be deemed irrevocably to authorize, each Agent to take such

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action on its behalf under the provisions of this Agreement, the other Credit
Documents and any other instruments and agreements referred to herein or therein
and to exercise such powers and to perform such duties hereunder and thereunder
as are specifically delegated to or required of each Agent by the terms hereof
and thereof and such other powers as are reasonably incidental thereto. Each
Agent may perform any of their duties hereunder by or through their respective
officers, directors, agents, employees or affiliates.

12.02 Nature of Duties. The Agents shall not have any duties or
responsibilities except those expressly set forth in this Agreement and the
other Credit Documents. No Agent nor any of its respective officers, directors,
agents, employees or affiliates shall be liable for any action taken or omitted
by them hereunder or under any other Credit Document or in connection herewith
or therewith, unless caused by their gross negligence or willful misconduct (as
determined by a court of competent jurisdiction in a final and non-appealable
decision). The duties of the Agents shall be mechanical and administrative in
nature; no Agent shall have by reason of this Agreement or any other Credit
Document a fiduciary relationship in respect of any Lender or the holder of any
Note; and nothing in this Agreement or any other Credit Document, expressed or
implied, is intended to or shall be so construed as to impose upon any Agent any
obligations in respect of this Agreement or any other Credit Document except as
expressly set forth herein or therein.

12.03 Lack of Reliance on the Agents. Independently and without
reliance upon any Agent, each Lender and the holder of each Note, to the extent
it deems appropriate, has made and shall continue to make (i) its own
independent investigation of the financial condition and affairs of the Parent
and its Subsidiaries in connection with the making and the continuance of the
Loans and the taking or not taking of any action in connection herewith and (ii)
its own appraisal of the creditworthiness of the Parent and its Subsidiaries
and, except as expressly provided in this Agreement, no Agent shall have any
duty or responsibility, either initially or on a continuing basis, to provide
any Lender or the holder of any Note with any credit or other information with
respect thereto, whether coming into its possession before the making of the
Loans or at any time or times thereafter. No Agent nor any of its affiliates or
any of its officers, directors, agents or employees shall be responsible to any
Lender or the holder of any Note for any recitals, statements, information,
representations or warranties herein or in any document, certificate or other
writing delivered in connection herewith or for the execution, effectiveness,
genuineness, validity, enforceability, perfection, collectibility, priority or
sufficiency of this Agreement or any other Credit Document or the financial
condition of the Parent and its Subsidiaries or be required to make any inquiry
concerning either the performance or observance of any of the terms, provisions
or conditions of this Agreement or any other Credit Document, or the financial
condition of the Parent and its Subsidiaries or the existence or possible
existence of any Default or Event of Default.

12.04 Certain Rights of the Agents. If any Agent shall request
instructions from the Required Lenders with respect to any act or action
(including failure to act) in connection with this Agreement or any other Credit
Document, such Agent shall be entitled to refrain from such act or taking such
action unless and until such Agent shall have received instructions from the
Required Lenders; and such Agent shall not incur liability to any Person by
reason of so refraining. Without limiting the foregoing, no Lender nor any
holder of any Note shall have any right of action whatsoever against any Agent
as a result of such Agent acting or refraining from

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acting hereunder or under any other Credit Document in accordance with the
instructions of the Required Lenders.

12.05 Reliance. Each Agent shall be entitled to rely, and shall be
fully protected in relying, upon any note, writing, resolution, notice,
statement, certificate, telex, teletype, facsimile or telecopier message,
cablegram, radiogram, order or other document or telephone message signed, sent
or made by any Person that such Agent believed to be the proper Person, and,
with respect to all legal matters pertaining to this Agreement and any other
Credit Document and its duties hereunder and thereunder, upon advice of counsel
selected by such Agent (which may be counsel for the Credit Parties).

12.06 Indemnification. To the extent that any Agent is not reimbursed
and indemnified by the Borrower, each Lender will reimburse and indemnify such
Agent, in proportion to its "percentage" as used in determining the Required
Lenders (determined as if there were no Defaulting Lenders) for and against any
and all liabilities, obligations, losses, damages, penalties, claims, actions,
judgments, suits, costs, expenses or disbursements of whatsoever kind or nature
which may be imposed on, asserted against or incurred by such Agent in
performing its duties hereunder or under any other Credit Document, in any way
relating to or arising out of this Agreement or any other Credit Document;
provided that no Lender shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, claims, actions, judgments, suits,
costs, expenses or disbursements resulting from such Agent's gross negligence or
willful misconduct (as determined by a court of competent jurisdiction in a
final and non-appealable decision).

12.07 The Agents in Their Individual Capacity. With respect to its
obligation to make Loans under this Agreement, each Agent shall have the rights
and powers specified herein for a "Lender" and may exercise the same rights and
powers as though it were not performing the duties specified herein; and the
term "Lenders," "Required Lenders," "holders of Notes" or any similar terms
shall, unless the context clearly otherwise indicates, include each Agent in its
individual capacity. Each Agent may accept deposits from, lend money to, and
generally engage in any kind of banking, trust or other business with any Credit
Party or any Affiliate of any Credit Party as if it were not performing the
duties specified herein, and may accept fees and other consideration from the
Borrower, or any other Credit Party for services in connection with this
Agreement and otherwise without having to account for the same to the Lenders.

12.08 Holders. The Administrative Agent may deem and treat the payee
of any Note as the owner thereof for all purposes hereof unless and until a
written notice of the assignment, transfer or endorsement thereof, as the case
may be, shall have been filed with the Administrative Agent. Any request,
authority or consent of any Person who, at the time of making such request or
giving such authority or consent, is the holder of any Note shall be conclusive
and binding on any subsequent holder, transferee, assignee or endorsee, as the
case may be, of such Note or of any Note or Notes issued in exchange therefor.

12.09 Resignation. (a) The Administrative Agent may resign from the
performance of all its functions and duties hereunder and/or under the other
Credit Documents at any time by giving 15 Business Days' prior written notice to
the Borrower and the Lenders.

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Such resignation shall take effect upon the appointment of a successor
Administrative Agent pursuant to clauses (b) and (c) below or as otherwise
provided below.

(b) Upon any such notice of resignation, the Required Lenders shall,
with the consent of the Borrower (which consent shall not be unreasonably
withheld or delayed and shall not be required at any time when an Event of
Default exists), appoint a successor Administrative Agent hereunder or
thereunder who shall be a commercial bank or trust company.

(c) If a successor Administrative Agent shall not have been so
appointed within such 15 Business Day period, the Administrative Agent, with the
consent of the Borrower (which consent shall not be unreasonably withheld or
delayed and shall not be required at any time when an Event of Default exists),
shall then appoint a commercial bank or trust company as successor
Administrative Agent who shall serve as Administrative Agent hereunder or
thereunder until such time, if any, as the Required Lenders appoint a successor
Administrative Agent as provided above.

(d) If no successor Administrative Agent has been appointed pursuant
to clause (b) or (c) above by the 20th Business Day after the date such notice
of resignation was given by the Administrative Agent, the Administrative Agent's
resignation shall become effective and the Required Lenders shall thereafter
perform all the duties of the Administrative Agent hereunder and/or under any
other Credit Document until such time, if any, as the Required Lenders appoint a
successor Administrative Agent as provided in clause (b) above.

(e) Upon a resignation of any Agent pursuant to this Section 12.09,
such Agent shall remain indemnified to the extent provided in this Agreement and
the other Credit Documents and the provisions of this Section 12 shall continue
in effect for the benefit of such Agent for all of its actions and inactions
while serving as an Agent.

12.10 Syndication Agent. Notwithstanding anything to the contrary
contained herein, nothing in this Agreement shall impose on the Syndication
Agent, in such capacity, any duties or obligations.

SECTION 13. Miscellaneous.

13.01 Payment of Expenses, etc. The Borrower shall: (i) whether or
not the transactions herein contemplated are consummated, pay all reasonable
out-of-pocket costs and expenses of (x) the Agents (including, without
limitation, the reasonable fees and disbursements of White & Case LLP) in
connection with the preparation, execution and delivery of this Agreement and
the other Credit Documents and the documents and instruments referred to herein
and therein and any amendment, waiver or consent relating hereto or thereto, it
being understood that for purposes of this clause (x), the Agents shall use no
more than one transaction counsel and such local counsel as reasonably
necessary, (y) each Agent in connection with its syndication efforts (if any)
with respect to this Agreement and (z) the Agents and, following and during the
continuation of an Event of Default, each of the Lenders in connection with the
enforcement of this Agreement and the other Credit Documents and the documents
and instruments referred to herein and therein (including, without limitation,
the reasonable fees and disbursements of counsel and consultants for the Agents
and, following and during the

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continuation of an Event of Default, for each of the Lenders) in each case
promptly following receipt of a reasonably detailed invoice therefor; (ii)
without duplication of any other payments paid or payable pursuant to any other
provision of this Agreement or any other Credit Document, pay and hold each of
the Lenders harmless from and against any and all present and future stamp,
excise and other similar taxes with respect to the foregoing matters and hold
each of the Lenders harmless from and against any and all liabilities with
respect to or resulting from any delay or omission (other than to the extent
attributable to such Lender) to pay such taxes; and (iii) without duplication of
any other payments paid or payable pursuant to any other provision of this
Agreement or any other Credit Document, indemnify each Agent and each Lender,
and each of their respective officers, directors, employees, representatives,
affiliates and agents from and hold each of them harmless against any and all
liabilities, obligations (including removal or remedial actions), losses,
damages, penalties, claims, actions, judgments, suits, costs, expenses and
disbursements (including reasonable attorneys' and consultants' fees and
disbursements) incurred by, imposed on or assessed against any of them as a
result of, or arising out of, or in any way related to, or by reason of, (a) any
investigation, litigation or other proceeding (whether or not any Agent or any
Lender is a party thereto) related to the entering into and/or performance of
this Agreement or any other Credit Document or the proceeds of any Loans
hereunder or the consummation of any transactions contemplated herein or in any
other Credit Document or the exercise of any of their rights or remedies
provided herein or in the other Credit Documents, or (b) the actual or alleged
presence of Hazardous Materials in the air, surface water or groundwater or on
the surface or subsurface of any Real Property owned or at any time operated by
the Borrower or any of its Subsidiaries, the generation, storage,
transportation, handling or disposal of Hazardous Materials at any location,
whether or not owned or operated by the Borrower or any of its Subsidiaries, the
non-compliance of any Real Property with foreign, federal, state and local laws,
regulations, and ordinances (including applicable permits thereunder) applicable
to any Real Property, or any Environmental Action asserted against the Borrower,
any of its Subsidiaries, or any Real Property owned or at any time operated by
the Borrower or any of its Subsidiaries, including, in each case, without
limitation, the reasonable fees and disbursements of counsel and other
consultants incurred in connection with any such investigation, litigation or
other proceeding (but excluding any losses, liabilities, claims, damages or
expenses to the extent incurred by reason of the gross negligence or willful
misconduct of the Person to be indemnified (as determined by a court of
competent jurisdiction in a final and non-appealable decision)). To the extent
that the undertaking to indemnify, pay or hold harmless any Agent or any Lender
set forth in the preceding sentence may be unenforceable because it is violative
of any law or public policy, the Borrower shall make the maximum contribution to
the payment and satisfaction of each of the indemnified liabilities which is
permissible under applicable law.

13.02 Right of Setoff. In addition to any rights now or hereafter
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence and during the continuance of an Event of
Default, each Lender is hereby authorized at any time or from time to time,
without presentment, demand, protest or other notice of any kind to the Borrower
or to any other Person, any such notice being hereby expressly waived, to set
off and to appropriate and apply any and all deposits (general or special) and
any other Indebtedness at any time held or owing by such Lender or its
Affiliates (including, without limitation, by branches and agencies of such
Lender wherever located) to or for the credit or the account of any Credit Party
against and on account of the Obligations and liabilities of all Credit Parties
to such Lender under this Agreement or under any of the other Credit Documents,
including, without

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limitation, all interests in Obligations purchased by such Lender pursuant to
Section 13.06(b), and all other claims of any nature or description arising out
of or connected with this Agreement or any other Credit Document, irrespective
of whether or not such Lender shall have made any demand hereunder and although
said Obligations, liabilities or claims, or any of them, shall be contingent or
unmatured.

13.03 Notices. Except as otherwise expressly provided herein, all
notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, telecopier or cable communication) and mailed,
telegraphed, telexed, telecopied, cabled or delivered: if to the Borrower, at
the Borrower's address specified opposite its signature below; if to any other
Credit Party, at such Credit Party's address set forth opposite its signature
below; if to any Lender, at its address specified on Schedule II below; and if
to the Administrative Agent, at the Notice Office; or, as to any Credit Party or
the Administrative Agent, at such other address as shall be designated by such
party in a written notice to the other parties hereto and, as to each Lender, at
such other address as shall be designated by such Lender in a written notice to
the Borrower and the Administrative Agent. All such notices and communications
shall, when mailed, telegraphed, telexed, telecopied, or cabled or sent by
overnight courier, be effective when deposited in the mails, delivered to the
telegraph company, cable company or overnight courier, as the case may be, or
sent by telex or telecopier, except that notices and communications to the
Administrative Agent shall not be effective until received by the Administrative
Agent.

13.04 Benefit of Agreement. (a) This Agreement shall be binding upon
and inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto; provided, however, that the Borrower may not
assign or transfer any of its rights, obligations or interest hereunder or under
any other Credit Document without the prior written consent of all of the
Lenders and the Administrative Agent and, provided further, that although any
Lender may transfer, assign or grant participations in its rights hereunder,
such Lender shall remain a "Lender" for all purposes hereunder (and may not
transfer or assign all or any portion of its Commitment hereunder except as
provided in Section 13.04(b)) and the transferee, assignee or participant, as
the case may be, shall not constitute a "Lender" hereunder and, provided
further, that no Lender shall transfer or grant any participation under which
the participant shall have rights to approve any amendment to or waiver of this
Agreement or any other Credit Document except to the extent such amendment or
waiver would (i) extend the final scheduled maturity of any Loan or Note, or
reduce the rate or extend the time of payment of interest or Fees thereon
(except in connection with a waiver of applicability of any post-default
increase in interest rates) or reduce the principal amount thereof, or increase
the amount of the participant's participation over the amount thereof then in
effect (it being understood that waivers or modifications of conditions
precedent, covenants, Defaults or Events of Default or of a mandatory reduction
in the Total Commitment shall not constitute a change in the terms of such
participation, and that an increase in any Commitment shall be permitted without
the consent of any participant if the participant's participation is not
increased as a result thereof) or (ii) consent to the assignment or transfer by
the Borrower of any of their rights and obligations under this Agreement. In the
case of any such participation, the participant shall not have any rights under
this Agreement or any of the other Credit Documents (the participant's rights
against such Lender in respect of such participation to be those set forth in
the agreement

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executed by such Lender in favor of the participant relating thereto) and all
amounts payable by the Borrower hereunder shall be determined as if such Lender
had not sold such participation.

(b) Notwithstanding the foregoing, any Lender (or any Lender together
with one or more other Lenders) may (x) assign all or a portion of its
Commitment and related outstanding Obligations hereunder (or, if the Commitments
have terminated, its outstanding Obligations) to (i) its parent company and/or
any affiliate of such Lender which is at least 50% owned by such Lender or its
parent company or to one or more other Lenders or (ii) in the case of any Lender
that is a fund that invests in bank loans, any other fund that invests in bank
loans and is managed by the same investment advisor of such Lender or by an
Affiliate of such investment advisor or (y) assign all, or if less than all, a
portion equal to at least $1,000,000 in the aggregate for the assigning Lender
or assigning Lenders, of such Commitments and related outstanding Obligations
hereunder (or, if the Commitments have terminated, its outstanding Obligations)
to one or more Eligible Transferees, each of which assignees shall become a
party to this Agreement as a Lender by execution of an Assignment and Assumption
Agreement, provided that (i) at such time Schedule I shall be deemed modified to
reflect the Commitment of such new Lender and of the existing Lenders, (ii) at
the request of the assignee Lender, and upon surrender of the relevant Notes or
the provision of a customary lost note indemnification agreement from the
assignor or assignee Lender, as the case may be, new Notes will be issued, at
the Borrowers' expense, to such new Lender and to the assigning Lender, such new
Notes to be in conformity with the requirements of Section 1.05 (with
appropriate modifications) to the extent needed to reflect the revised
Commitments, (iii) the consent of the Administrative Agent, and, at any time
when no Default or Event of Default is in existence, the Borrower shall be
required in connection with any such assignment pursuant to clause (y) above
(each of which consents shall not to be unreasonably withheld or delayed), and
(iv) the Administrative Agent shall receive at the time of each such assignment,
from the assigning or assignee Lender, the payment of a non-refundable
assignment fee of $3,500 and, provided further, that such transfer or assignment
will not be effective until recorded by the Administrative Agent on the Register
pursuant to Section 13.16 hereof. To the extent of any assignment pursuant to
this Section 13.04(b), the assigning Lender shall be relieved of its obligations
hereunder with respect to its assigned Commitments. At the time of each
assignment pursuant to this Section 13.04(b) to a Person which is not already a
Lender hereunder and which is not a United States person (as such term is
defined in Section 7701(a)(30) of the Internal Revenue Code) for Federal income
tax purposes, the respective assignee Lender shall provide to the Borrower and
the Administrative Agent the appropriate Internal Revenue Service Forms (and, if
applicable a Section 4.04(b)(ii) Certificate) described in Section 4.04(b). To
the extent that an assignment of all or any portion of a Lender's Commitments
and related outstanding Obligations pursuant to this Section 13.04(b) would, at
the time of such assignment, result in increased costs under Section 1.10, 1.11
or 4.04 greater than those being charged by the respective assigning Lender
prior to such assignment, then the Borrower shall not be obligated to pay such
greater increased costs (although the Borrower shall be obligated to pay any
other increased costs of the type described above resulting from changes after
the date of the respective assignment).

(c) Nothing in this Agreement shall prevent or prohibit any Lender
from pledging its Loans and Notes hereunder to a Federal Reserve Bank in support
of borrowings made by such Lender from such Federal Reserve Bank and, with the
consent of the Administrative Agent, any Lender which is a fund may pledge all
or any portion of its Notes or

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Loans to its trustee or to a collateral agent providing credit or credit support
to such Lender in support of its obligations to its trustee or such collateral
agent, as the case may be. No pledge pursuant to this clause (c) shall release
the transferor Lender from any of its obligations hereunder.

13.05 No Waiver; Remedies Cumulative. No failure or delay on the part
of any Agent or any Lender or any holder of any Note in exercising any right,
power or privilege hereunder or under any other Credit Document and no course of
dealing between the Borrower or any other Credit Party and any Agent or any
Lender or the holder of any Note shall operate as a waiver thereof; nor shall
any single or partial exercise of any right, power or privilege hereunder or
under any other Credit Document preclude any other or further exercise thereof
or the exercise of any other right, power or privilege hereunder or thereunder.
The rights, powers and remedies herein or in any other Credit Document expressly
provided are cumulative and not exclusive of any rights, powers or remedies
which any Agent or any Lender or the holder of any Note would otherwise have. No
notice to or demand on any Credit Party in any case shall entitle any Credit
Party to any other or further notice or demand in similar or other circumstances
or constitute a waiver of the rights of any Agent or any Lender or the holder of
any Note to any other or further action in any circumstances without notice or
demand. No Lender, Agent or any other indemnified person shall be responsible or
liable to the Borrower or any other Credit Party or any other Person for (x) any
determination made by it pursuant to this Agreement or any other Credit Document
or any transaction contemplated hereby or thereby in the absence of gross
negligence or willful misconduct on the part of such person or entity (as
determined by a court of competent jurisdiction in a final and non-appealable
judgment) or (y) any indirect, special, punitive or consequential damages
(including, without limitation, any loss of profits, business or anticipated
savings) which may be alleged as a result of this Agreement or any other Credit
Document or any transaction contemplated hereby or thereby.

13.06 Payments Pro Rata. (a) Except as otherwise provided in this
Agreement, the Administrative Agent agrees that promptly after its receipt of
each payment from or on behalf of the Borrower in respect of any Obligations
hereunder, it shall distribute such payment to the Lenders (other than any
Lender that has consented in writing to waive its pro rata share of any such
payment) pro rata based upon their respective shares, if any, of the Obligations
with respect to which such payment was received.

(b) Each of the Lenders agrees that, if it should receive any amount
hereunder (whether by voluntary payment, by realization upon security, by the
exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise), which is applicable to the payment of the principal of, or interest
on, the Loans, Commitment Commission or other Fees, of a sum which with respect
to the related sum or sums received by other Lenders is in a greater proportion
than the total of such Obligation then owed and due to such Lender bears to the
total of such Obligation then owed and due to all of the Lenders immediately
prior to such receipt, then such Lender receiving such excess payment shall
purchase for cash without recourse or warranty from the other Lenders an
interest in the Obligations of the Borrower to such Lenders in such amount as
shall result in a proportional participation by all the Lenders in such amount;
provided that if all or any portion of such excess amount is thereafter
recovered from such Lender, such purchase shall be rescinded and the purchase
price restored to the extent of such recovery, but without interest.

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(c) Notwithstanding anything to the contrary contained herein, the
provisions of the preceding Sections 13.06(a) and (b) shall be subject to the
express provisions of this Agreement which require, or permit, differing
payments to be made to Non-Defaulting Lenders as opposed to Defaulting Lenders.

13.07 Calculations; Computations. (a) The financial statements to be
furnished to the Lenders pursuant hereto shall be made and prepared in
accordance with generally accepted accounting principles in the United States
consistently applied throughout the periods involved (except as set forth in the
notes thereto or as otherwise disclosed in writing by the Borrower to the
Lenders), provided that except as otherwise specifically provided herein.

(b) All computations of interest on Eurodollar Loans hereunder shall
be made on the basis of a year of 360 days for the actual number of days
(including the first day but excluding the last day) occurring in the period for
which such interest is payable. All computations of interest on Base Rate Loans
and computations of Fees hereunder shall be made on the basis of a year of
365/366 days for the actual number of days (including the first day but
excluding the last day) occurring in the period for which such interest or Fees
are payable.

13.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE. (a) THIS
AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE
GOVERNED BY THE LAW OF THE STATE OF NEW YORK. ANY LEGAL ACTION OR PROCEEDING
WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT IN
THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN
DISTRICT OF NEW YORK, IN EACH CASE WHICH ARE LOCATED IN THE COUNTY OF NEW YORK,
AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH CREDIT PARTY HEREBY
IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH CREDIT PARTY
HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH COURTS LACK PERSONAL
JURISDICTION OVER IT, AND AGREES NOT TO PLEAD OR CLAIM, IN ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENTS BROUGHT
IN ANY OF THE AFOREMENTIONED COURTS, THAT SUCH COURTS LACK PERSONAL JURISDICTION
OVER IT. EACH CREDIT PARTY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING
BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE
PREPAID, TO EACH CREDIT PARTY AT ITS ADDRESS SET FORTH OPPOSITE ITS SIGNATURE
BELOW, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. NOTHING
HEREIN SHALL AFFECT THE RIGHT OF ANY AGENT, ANY LENDER OR THE HOLDER OF ANY NOTE
TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY CREDIT PARTY IN ANY OTHER
JURISDICTION.

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(b) EACH CREDIT PARTY HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT
MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS
OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER
CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (a) ABOVE AND HEREBY
FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT
THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN
AN INCONVENIENT FORUM.

13.09 Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with the Borrower and the
Administrative Agent.

13.10 Effectiveness. This Agreement shall become effective on the
date (the "Effective Date") on which (i) the Borrower, each Lender and each
Agent shall have signed a counterpart hereof (whether the same or different
counterparts) and shall have delivered (including by way of facsimile) the same
to the Administrative Agent at the Notice Office or, in the case of the Lenders,
shall have given the Administrative Agent telephonic (confirmed in writing),
written or telex notice (actually received) at such office that same has been
signed and mailed to it and (ii) the conditions contained in Section 5 are met
to the satisfaction of the Agents and the Required Lenders. Unless the
Administrative Agent has received actual notice from any Lender that the
conditions contained in Section 5 have not been met to its reasonable
satisfaction, upon the satisfaction of the condition described in clause (i) of
the immediately preceding sentence and upon the Administrative Agent's good
faith determination that the conditions described in clause (ii) of the
immediately preceding sentence have been met, then the Effective Date shall have
been deemed to have occurred, regardless of any subsequent determination that
one or more of the conditions thereto had not been met (although the occurrence
of the Effective Date shall not release the Borrower from any liability for
failure to satisfy one or more of the applicable conditions contained in Section
5). The Administrative Agent will give the Borrower and each Lender prompt
written notice of the occurrence of the Effective Date.

13.11 Headings Descriptive. The headings of the several sections and
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.

13.12 Amendment or Waiver. Neither this Agreement nor any other
Credit Document nor any terms hereof or thereof may be changed, waived,
discharged or terminated unless such change, waiver, discharge or termination is
in writing signed by the respective Credit Parties party thereto and the
Required Lenders, provided that no such change, waiver, discharge or termination
shall, without the consent of each Lender (other than a Defaulting Lender) (with
Obligations being directly affected thereby in the case of following clause
(i)), (i) extend the final scheduled maturity of any Loan or Note, or reduce the
rate or extend the time of payment of interest or Fees (it being understood that
any amendment or modification to the financial definitions in this Agreement or
to Section 13.07(a) shall not constitute a reduction in the rate of interest or
Fees for the purposes of this clause (i)), or reduce the principal amount
thereof, (ii)

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amend, modify or waive any provision of this Section 13.12 (except for technical
amendments with respect to additional extensions of credit under this Agreement
of the type which afford the protections to such additional extensions of credit
provided to the Commitments on the Effective Date), (iii) reduce the percentage
specified in the definition of Required Lenders (it being understood and agreed
that, with the consent of the Required Lenders, additional extensions of credit
pursuant to this Agreement may be included in the determination of the Required
Lenders on substantially the same basis as the Commitments are included on the
Effective Date) or (iv) consent to the assignment or transfer by the Borrower of
any of its rights and obligations under this Agreement; provided further, that
no such change, waiver, discharge or termination shall (1) increase the
Commitment of any Lender over the amount thereof then in effect without the
consent of such Lender (it being understood and agreed that waivers or
modifications of conditions precedent, covenants (including, without limitation,
by means of modifications to the financial definitions or modifications in the
method of calculation of any financial covenants), Defaults or Events of Default
or of a mandatory reduction in the Total Commitments shall not constitute an
increase of the Commitment of any Lender, and that an increase in the available
portion of any Commitment of any Lender shall not constitute an increase in the
Commitment of such Lender) or (2) without the consent of each Agent affected
thereby, amend, modify or waive any provision of Section 12 as same applies to
such Agent or any other provision as same relates to the rights or obligations
of such Agent.

13.13 Survival. All indemnities set forth herein including, without
limitation, in Sections 1.10, 1.11, 4.04, 13.01 and 13.06 shall, survive the
execution, delivery and termination of this Agreement and the Notes and the
making and repayment of the Loans.

13.14 Domicile of Loans. Each Lender may transfer and carry its Loans
at, to or for the account of any office, Subsidiary or Affiliate of such Lender.
Notwithstanding anything to the contrary contained herein, to the extent that a
transfer of Loans pursuant to this Section 13.14 would, at the time of such
transfer, result in increased costs under Section 1.10, 1.11 or 4.04 from those
being charged by the respective Lender prior to such transfer, then the Borrower
shall not be obligated to pay such increased costs (although the Borrower shall
be obligated to pay any other increased costs of the type described above
resulting from changes after the date of the respective transfer).

13.15 Confidentiality. (a) Subject to the provisions of clause (b) of
this Section 13.15, each Lender agrees that it will not disclose without the
prior consent of the Parent (other than to its employees, auditors, advisors or
counsel or to another Lender if the Lender or such Lender's holding or parent
company in its sole discretion determines that any such party should have access
to such information, provided such Persons shall be subject to the provisions of
this Section 13.15 to the same extent as such Lender) any information with
respect to the Parent or any of its Subsidiaries which is now or in the future
furnished pursuant to this Agreement or any other Credit Document and which is
designated by the Parent to the Lenders in writing as confidential, provided
that any Lender may disclose any such information (a) as has become generally
available to the public, (b) as may be required or appropriate in any report,
statement or testimony submitted to any municipal, state or Federal regulatory
body having or claiming to have jurisdiction over such Lender or to the Federal
Reserve Board or the Federal Deposit Insurance Corporation or similar
organizations (whether in the United States or elsewhere) or their successors,
(c) as may be required or appropriate in respect to any summons or subpoena or

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in connection with any litigation, (d) in order to comply with any law, order,
regulation or ruling applicable to such Lender, (e) to any Agent, (f) to any
prospective or actual transferee or participant in connection with any
contemplated transfer or participation of any of the Notes or Commitments or any
interest therein by such Lender, provided that such prospective transferee
agrees to be subject to the provisions contained in this Section 13.15 and (g)
to any nationally recognized rating agency that requires access to information
about such Lender's investment portfolio in connection with ratings issued to
such Lender.

(b) Each Credit Party hereby acknowledges and agrees that each Lender
may share with any of its Affiliates any information related to the Parent or
any of its Subsidiaries (including, without limitation, any nonpublic customer
information regarding the creditworthiness of the Parent and its Subsidiaries),
provided such Persons shall be subject to the provisions of this Section 13.15
to the same extent as such Lender.

(c) Each Credit Party hereby represents and acknowledges that, to the
best of its knowledge, no Agent nor any Lender, nor any employees or agents of,
or other persons affiliated with, any Agent or any Lender, have directly or
indirectly made or provided any statement (oral or written) to such Credit Party
or to any of their respective employees or agents, or other persons affiliated
with or related to such Credit Party (or, so far as such Credit Party is aware,
to any other Person), as to the potential tax consequences of this Agreement,
any other Credit Document or any of the transactions contemplated hereby or
thereby.

(d) Neither the Agents, the Lenders or any of their respective
affiliates nor any Credit Party provide accounting, tax, or legal advice and
each party has consulted, or will consult, its own advisors regarding its
participation in the transactions contemplated by this Agreement.
Notwithstanding anything provided herein, in the other Credit Documents or in
any other document or agreement relating to the transactions contemplated herein
and in the other Credit Documents, and any express or implied claims of
exclusivity or proprietary rights, the Agents, the Lenders and each of the
Credit Parties hereby agree and acknowledge that each Credit Party, the Agents,
the Lenders and any of their respective affiliates (and each of their respective
employees, representatives or other agents) are authorized to disclose to any
and all persons, beginning immediately upon commencement of their discussions
regarding such transactions and without limitation of any kind, the U.S.
federal, state, or local tax treatment and tax structure of such transactions,
and all materials of any kind (including opinions or other tax analyses) that
are provided by either any Credit Party, any Agent, any Lender or any of their
respective affiliates (and any of their respective employees, representatives or
other agents) to any other such party relating to such tax treatment and tax
structure, except to the extent that such disclosure is subject to restrictions
reasonably necessary to comply with securities laws. For purposes of this
authorization, "tax treatment" of a transaction means the purported or claimed
tax treatment of the transaction and "tax structure" of a transaction means any
fact that may be relevant to understanding the purported or claimed tax
treatment of the transaction. Nothing herein is intended to imply that any oral
or written statement as to any potential tax consequences that are related to,
or may result from, the transactions contemplated by the Agreement and the other
Credit Documents have been made or provided to, or for the benefit of, any
Agent, Lender, Credit Party or any of their respective affiliates by any other
such party.

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13.16 Register. The Borrower hereby designates the Administrative
Agent to serve as the Borrower's agent, solely for purposes of this Section
13.16, to maintain a register (the "Register") on which it will record the
Commitments from time to time of each of the Lenders, the Loans made by each of
the Lenders and each repayment in respect of the principal amount of the Loans
of each Lender. The entries in the Register shall be conclusive and binding for
all purposes, absent manifest error. Failure to make any such recordation, or
any error in such recordation shall not affect the Borrower's obligations in
respect of such Loans. With respect to any Lender, the transfer of the
Commitments of such Lender and the rights to the principal of, and interest on,
any Loan made pursuant to such Commitments shall not be effective until such
transfer is recorded on the Register maintained by the Administrative Agent with
respect to ownership of such Commitments and Loans and prior to such recordation
all amounts owing to the transferor with respect to such Commitments and Loans
shall remain owing to the transferor. The registration of assignment or transfer
of all or part of any Commitments and Loans shall be recorded by the
Administrative Agent on the Register only upon the acceptance by the
Administrative Agent of a properly executed and delivered Assignment and
Assumption Agreement pursuant to Section 13.04(b). Coincident with the delivery
of such an Assignment and Assumption Agreement to the Administrative Agent for
acceptance and registration of assignment or transfer of all or part of a Loan,
or as soon thereafter as practicable, the assigning or transferor Lender shall
surrender the Note evidencing such Loan, and thereupon one or more new Notes in
the same aggregate principal amount shall be issued to the assigning or
transferor Lender and/or the new Lender. The Borrower agrees to indemnify the
Administrative Agent from and against any and all losses, claims, damages and
liabilities of whatsoever nature which may be imposed on, asserted against or
incurred by the Administrative Agent in performing its duties under this Section
13.16.

13.17 Limitation on Interest. Notwithstanding anything to the
contrary contained in this Agreement or any other Credit Document, all
agreements between the Borrower, the Administrative Agent or any Lender, whether
now existing or hereafter arising and whether written or oral, are hereby
expressly limited so that in no contingency or event whatsoever, whether by
reason of demand being made in respect of an amount due under any Credit
Document or otherwise, shall the amount paid, or agreed to be paid, to the
Administrative Agent or any Lender for the use, forbearance, or detention of the
money to be loaned under this Agreement, any Notes or any other Credit Document
or otherwise or for the payment or performance of any covenant or obligation
contained herein or in any other Credit Document exceed the Highest Lawful Rate.
If, as a result of any circumstances whatsoever, fulfillment of any provision
hereof or of any of such documents, at the time performance of such provision
shall be due, shall involve transcending the limit of validity prescribed by
Applicable Law, then, ipso facto, the obligation to be fulfilled shall be
reduced to the limit of such validity, and if, from any such circumstance, the
Administrative Agent or any Lender shall ever receive interest under Applicable
Law that would exceed the Highest Lawful Rate, such amount that would exceed the
Highest Lawful Rate shall be applied to the reduction of the principal amount
owing on account of such Lender's Loans or the amounts owing on other
obligations of the Borrower to the Administrative Agent or any Lender under any
Credit Document and not to the payment of interest, or if such excessive
interest exceeds the unpaid principal balance of such Lender's Loans and the
amounts owing on other obligations of the Borrower to the Administrative Agent
or any Lender under any Credit Document, as the case may be, such excess shall
be refunded to the Borrower to the extent required under Applicable Law. All
sums paid or agreed to be paid to

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the Administrative Agent or any Lender for the use, forbearance or detention of
the indebtedness of the Borrower to the Administrative Agent or any Lender
shall, to the fullest extent permitted by Applicable Law, be amortized,
prorated, allocated and spread throughout the full term of such indebtedness
until payment in full of the principal (including the period of any renewal or
extension thereof) so that the interest on account of such indebtedness shall
not exceed the Highest Lawful Rate. Notwithstanding anything to the contrary
contained in any Credit Document, it is understood and agreed that if at any
time the rate of interest that accrues on the outstanding principal balance of
any Loan shall exceed the Highest Lawful Rate, the rate of interest that accrues
on the outstanding principal balance of any Loan shall be limited to the Highest
Lawful Rate, but any subsequent reductions in the rate of interest that accrues
on the outstanding principal balance of any Loan shall not reduce the rate of
interest that accrues on the outstanding principal balance of any Loan below the
Highest Lawful Rate until the total amount of interest accrued on the
outstanding principal balance of any Loan equals the amount of interest that
would have accrued if such interest rate had at all times been in effect."

13.18 South Texas Project. Notwithstanding any provision to the
contrary contained herein, solely with respect to the South Texas Project, the
Credit Parties shall only be required to comply with any provision of Sections
8, 9 or 10 of this Agreement to the extent such compliance is not prohibited or
otherwise restricted by the terms of the STP Operating Agreement or the STP
Participation Agreement, as in effect on the date hereof.

SECTION 14. Guaranty.

14.01 Guaranty. In order to induce the Lenders to enter into this
Agreement and to extend credit hereunder and in recognition of the direct
benefits to be received by each Guarantor from the proceeds of the Loans, each
Guarantor hereby agrees with the Lenders as follows: Each Guarantor hereby
unconditionally and irrevocably guarantees, as primary obligor and not merely as
surety the full and prompt payment when due in cash, whether upon maturity,
acceleration or otherwise, of any and all of the Guaranteed Obligations to the
Guaranteed Creditors. If any or all of the Guaranteed Obligations to the
Guaranteed Creditors becomes due and payable hereunder, each Guarantor
unconditionally promises to pay such indebtedness to the Guaranteed Creditors,
or order, on demand, together with any and all expenses which may be incurred by
the Guaranteed Creditors in collecting any of the Guaranteed Obligations. This
Guaranty is a continuing one and the Guaranteed Obligations shall be
conclusively presumed to have been created in reliance hereon. If claim is ever
made upon any Guaranteed Creditor for repayment or recovery of any amount or
amounts received in payment or on account of any of the Guaranteed Obligations
and any of the Guaranteed Creditors repays all or part of said amount by reason
of (i) any judgment, decree or order of any court or administrative body having
jurisdiction over such Guaranteed Creditor or any of its property or (ii) any
settlement or compromise of any such claim effected by such Guaranteed Creditor
with any such claimant (including the Borrower), then and in such event each
Guarantor agrees that any such judgment, decree, order, settlement or compromise
shall be binding upon the Guarantors, notwithstanding any revocation of this
Guaranty or any other instrument evidencing any liability of the Borrower, and
each Guarantor shall be and remain liable to the Guaranteed Creditors hereunder
for the amount so repaid or recovered to the same extent as if such amount had
never originally been received by any such payee.

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14.02 Bankruptcy. Additionally, each Guarantor unconditionally and
irrevocably guarantees the payment of any and all of the Guaranteed Obligations
to the Guaranteed Creditors whether or not due or payable by the Borrower upon
the occurrence of any of the events specified in Section 10.05, and
unconditionally promises to pay such indebtedness to the Guaranteed Creditors,
or order, on demand.

14.03 Nature of Liability. The liability of each Guarantor hereunder
is exclusive and independent of any security for or other guaranty of the
Guaranteed Obligations whether executed by any Guarantor, any other guarantor or
by any other party, and the liability of each Guarantor hereunder is not
affected or impaired by (a) any direction as to application of payment by any
Borrower or by any other party, or (b) any other continuing or other guaranty,
undertaking or maximum liability of a guarantor or of any other party as to the
Guaranteed Obligations, or (c) any payment on or in reduction of any such other
guaranty or undertaking, or (d) any dissolution, termination or increase,
decrease or change in personnel by the Borrower, or (e) any payment made to the
Guaranteed Creditors on the Guaranteed Obligations which any such Guaranteed
Creditor repays to the Borrower pursuant to court order in any bankruptcy,
reorganization, arrangement, moratorium or other debtor relief proceeding, and
each Guarantor waives any right to the deferral or modification of its
obligations hereunder by reason of any such proceeding.

14.04 Independent Obligation. No invalidity, irregularity or
unenforceability of all or any part of the Guaranteed Obligations or of any
security therefor shall affect, impair or be a defense to this Guaranty, and
this Guaranty shall be primary, absolute and unconditional notwithstanding the
occurrence of any event or the existence of any other circumstances which might
constitute a legal or equitable discharge of a surety or guarantor except
payment in full of the Guaranteed Obligations. The obligations of each Guarantor
hereunder are independent of the obligations of the Borrower, any other
guarantor or any other Person, and a separate action or actions may be brought
and prosecuted against each Guarantor whether or not action is brought against
any Borrower, any other guarantor or any other Person and whether or not any
Borrower, any other guarantor or any other Person be joined in any such action
or actions. Each Guarantor waives, to the full extent permitted by law, the
benefit of any statute of limitations affecting its liability hereunder or the
enforcement thereof. Any payment by a Borrower or other circumstance which
operates to toll any statute of limitations as to such Borrower shall operate to
toll the statute of limitations as to the Guarantors.

14.05 Authorization. Each Guarantor authorizes the Guaranteed
Creditors without notice or demand (except as shall be required by applicable
law and cannot be waived), and without affecting or impairing its liability
hereunder, from time to time to:

(a) change the manner, place or terms of payment of, and/or change or
extend the time of payment of, renew, increase, accelerate or alter, any of
the Guaranteed Obligations (including any increase or decrease in the rate
of interest thereon), any security therefor, or any liability incurred
directly or indirectly in respect thereof, and this Guaranty shall apply to
the Guaranteed Obligations as so changed, extended, renewed or altered;

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(b) take and hold security for the payment of the Guaranteed
Obligations and sell, exchange, release, surrender, realize upon or
otherwise deal with in any manner and in any order any property by
whomsoever at any time pledged or mortgaged to secure, or howsoever
securing, the Guaranteed Obligations or any liabilities (including any of
those hereunder) incurred directly or indirectly in respect thereof or
hereof, and/or any offset thereagainst;

(c) exercise or refrain from exercising any rights against the
Borrower or others, or otherwise act or refrain from acting;

(d) release or substitute any one or more endorsers, guarantors, the
Borrower or other obligors;

(e) settle or compromise any of the Guaranteed Obligations, any
security therefor or any liability (including any of those hereunder)
incurred directly or indirectly in respect thereof or hereof, and may
subordinate the payment of all or any part thereof to the payment of any
liability (whether due or not) of the Borrower to its creditors other than
the Guaranteed Creditors;

(f) apply any sums by whomsoever paid or howsoever realized to any
liability or liabilities of the Borrower to the Guaranteed Creditors
regardless of what liability or liabilities of the Borrower remain unpaid;

(g) consent to or waive any breach of, or any act, omission or default
under, this Agreement, any other Credit Document or any of the instruments
or agreements referred to herein or therein, or otherwise amend, modify or
supplement this Agreement, any other Credit Document or any of such other
instruments or agreements; and/or

(h) take any other action which would, under otherwise applicable
principles of common law, give rise to a legal or equitable discharge of
any Guarantor from its liabilities under this Guaranty.

14.06 Reliance. It is not necessary for the Guaranteed Creditors to
inquire into the capacity or powers of the Borrower or the officers, directors,
partners or agents acting or purporting to act on its or their behalf, and any
Guaranteed Obligations made or created in reliance upon the professed exercise
of such powers shall be guaranteed hereunder.

14.07 Rights of Contribution. (a) The Guarantors hereby agree, as
between themselves, that if any Guarantor shall become an Excess Funding
Guarantor (as defined below) by reason of the payment by such Guarantor of any
Guaranteed Obligations, each other Guarantor shall, on demand of such Excess
Funding Guarantor (but subject to the next sentence), pay to such Excess Funding
Guarantor an amount equal to such Guarantor's Pro Rata Share (as defined below
and determined, for this purpose, without reference to the properties, debts and
liabilities of such Excess Funding Guarantor) of the Excess Payment (as defined
below) in respect of such Guaranteed Obligations. The payment obligation of a
Guarantor to any Excess Funding Guarantor under this Section shall be
subordinate and subject in right of payment to the prior payment in full of the
obligations of such Guarantor under the other provisions of this

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Article 14 and such Excess Funding Guarantor shall not exercise any right or
remedy with respect to such excess until payment in full of all Guaranteed
Obligations.

(b) For purpose of this Section, (i) "Excess Funding Guarantor" means,
in respect of any Guaranteed Obligations, a Guarantor that has paid an amount in
excess of its Pro Rata Share of such Guaranteed Obligations, (ii) "Excess
Payment" means, in respect of any Guaranteed Obligations, the amount paid by an
Excess Funding Guarantor in excess of its Pro Rata Share of such Guaranteed
Obligations and (iii) "Pro Rata Share" means, for any Guarantor, the ratio
(expressed as percentage) or (x) the amount by which the aggregate present fair
saleable value of all properties of such Guarantor (excluding any shares of
stock of any other Guarantor) exceeds the amount of all the debts and
liabilities of such Guarantor (including contingent, subordinated, unmatured and
unliquidated liabilities, but excluding the obligations of such Guarantor
hereunder and any obligations of any other Guarantor that have been Guaranteed
by such Guarantor) to (y) the amount by which the aggregate fair saleable value
of all properties of all the Guarantors exceeds the amount of all the debts and
liabilities (including contingent, subordinated, unmatured and unliquidated
liabilities, but excluding the obligations of the Borrower and the Guarantors
hereunder and under the other Credit Documents) of all the Guarantors,
determined (A) with respect to any Guarantor that is a party hereto on the
Effective Date, as of the Effective Date, and (B) with respect to any other
Guarantor, as of the date such Guarantor becomes a Guarantor hereunder.

14.08 Waiver. (a) Each Guarantor waives any right (except as shall be
required by applicable law and cannot be waived) to require any Guaranteed
Creditor to (i) proceed against the Borrower, any other guarantor or any other
party, (ii) proceed against or exhaust any security held from the Borrower, any
other guarantor or any other party or (iii) pursue any other remedy in any
Guaranteed Creditor's power whatsoever. Each Guarantor waives any defense based
on or arising out of any defense of the Borrower any other guarantor or any
other party, other than payment in full in cash of the Guaranteed Obligations,
based on or arising out of the disability of the Borrower, any other guarantor
or any other party, or the unenforceability of the Guaranteed Obligations or any
part thereof from any cause, or the cessation from any cause of the liability of
the Borrower other than payment in full of the Guaranteed Obligations. The
Guaranteed Creditors may, at their election, foreclose on any security held by
the Administrative Agent, the Collateral Agent or any other Guaranteed Creditor
by one or more judicial or nonjudicial sales, whether or not every aspect of any
such sale is commercially reasonable (to the extent permitted by applicable law
and subject to the relevant provisions of the applicable Security Documents), or
exercise any other right or remedy the Guaranteed Creditors may have against the
Borrower or any other party, or any security, without affecting or impairing in
any way the liability of any Guarantor hereunder except to the extent the
Guaranteed Obligations have been irrevocably and indefeasibly paid in full in
cash. Each Guarantor waives any defense arising out of any such election by the
Guaranteed Creditors, even though such election operates to impair or extinguish
any right of reimbursement or subrogation or other right or remedy of any
Guarantor against the Borrower or any other party or any security.

(b) Each Guarantor waives all presentments, demands for performance,
protests and notices, including, without limitation, notices of nonperformance,
notices of protest, notices of dishonor, notices of acceptance of this Guaranty,
and notices of the existence, creation or incurring of new or additional
Guaranteed Obligations. Each Guarantor assumes all

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responsibility for being and keeping itself informed of the Borrower's financial
condition and assets, and of all other circumstances bearing upon the risk of
nonpayment of the Guaranteed Obligations and the nature, scope and extent of the
risks which such Guarantor assumes and incurs hereunder, and agrees that the
Guaranteed Creditors shall have no duty to advise any Guarantor of information
known to them regarding such circumstances or risks.

(c) Until such time as the Guaranteed Obligations have been paid in
full in cash, each Guarantor hereby waives all rights of subrogation which it
may at any time otherwise have as a result of this Guaranty (whether
contractual, under Section 509 of the Bankruptcy Code, or otherwise) to the
claims of the Guaranteed Creditors against the Borrower or any other guarantor
of the Guaranteed Obligations and all contractual, statutory or common law
rights of reimbursement, contribution or indemnity from the Borrower or any
other guarantor which it may at any time otherwise have as a result of this
Guaranty.

(d) Each Guarantor warrants and agrees that each of the waivers set
forth above is made with full knowledge of its significance and consequences and
that if any of such waivers are determined to be contrary to any applicable law
of public policy, such waivers shall be effective only to the maximum extent
permitted by law.

14.09 Payment. All payments made by any Guarantor pursuant to this
Section 14 shall be made in Dollars in immediately available funds. All payments
made by any Guarantor pursuant to this Section 14 will be made without setoff,
counterclaim or other defense, and shall be subject to the provisions of
Sections 4.03 and 4.04.

14.10 Savings Clause. Each Lender and each Guarantor hereby confirms
that it is its intention that this Guaranty not constitute a fraudulent transfer
or conveyance for purposes of the Bankruptcy Code, the Uniform Fraudulent
Transfer Act or any similar federal or state law. To effectuate the foregoing
intention, each Lender and each Guarantor hereby irrevocably agrees that
Guaranteed Obligations guaranteed by each Guarantor under this Guaranty shall be
limited to such amount as will, after giving effect to such maximum amount and
all of such Guarantor's other (contingent or otherwise) liabilities that are
relevant under such laws (but excluding, to the maximum extent permitted by
applicable law, any liabilities of a Guarantor arising under any other
indebtedness that is subordinated to the Guaranteed Obligations or any
obligations under this Guarantee), and after giving effect to any rights to
contribution pursuant to Section 14.07 hereof, result in the Guaranteed
Obligations of such Guarantor in respect of such maximum amount not constituting
a fraudulent transfer or conveyance.

******

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IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Agreement as of the date first
above written.

PLEDGE AGREEMENT (as amended, modified, restated and/or supplemented
from time to time, this "Agreement"), dated as of February 3, 2005, among each
of the undersigned pledgors (each, a "Pledgor" and, together with any other
entity that becomes a pledgor hereunder pursuant to Section 30 hereof, the
"Pledgors") and Deutsche Bank AG New York Branch, as collateral agent (together
with any successor collateral agent, the "Pledgee"), for the benefit of the
Secured Creditors (as defined below).

WITNESSETH:

WHEREAS, Texas Genco Holdings, Inc. ("Holdings"), Texas Genco GP,
LLC, ("Genco GP") Texas Genco LP, LLC, ("Genco LP"), Texas Genco, LP (the
"Borrower"), the lenders from time to time party thereto (the "Lenders") and
Deutsche Bank AG New York Branch, as administrative agent (together with any
successor administrative agent, the "Administrative Agent"), and Citibank, N.A.,
as Syndication Agent have entered into a Credit Agreement, dated as of February
3, 2005 (as amended, modified, restated and/or supplemented from time to time,
the "Credit Agreement"), providing for the making of Loans to the Borrower, as
contemplated therein (the Lenders, the Administrative Agent, each other Agent
and the Pledgee are herein called the "Secured Creditors");

WHEREAS, pursuant to the Guaranty, Holdings, Genco GP and Genco LP
have guaranteed to the Secured Creditors the payment when due of all Guaranteed
Obligations as described therein;

WHEREAS, it is a condition precedent to the making of Loans to the
Borrower under the Credit Agreement that each Pledgor shall have executed and
delivered to the Pledgee this Agreement; and

WHEREAS, each Pledgor will obtain benefits from the incurrence of
Loans by the Borrower under the Credit Agreement and, accordingly, desires to
execute this Agreement in order to satisfy the condition described in the
preceding paragraph and to induce the Lenders to make Loans to the Borrower;

NOW, THEREFORE, in consideration of the foregoing and other benefits
accruing to each Pledgor, the receipt and sufficiency of which are hereby
acknowledged, each Pledgor hereby makes the following representations and
warranties to the Pledgee for the benefit of the Secured Creditors and hereby
covenants and agrees with the Pledgee for the benefit of the Secured Creditors
as follows:

1. SECURITY FOR OBLIGATIONS. This Agreement is made by each Pledgor
for the benefit of the Secured Creditors to secure:

(i) the full and prompt payment when due (whether at stated
maturity, by acceleration or otherwise) of all obligations, liabilities
and indebtedness (including, without limitation, principal, premium,
interest (including, without limitation, all interest

that accrues after the commencement of any case, proceeding or other
action relating to the bankruptcy, insolvency, reorganization or similar
proceeding of any Pledgor or any Subsidiary thereof at the rate provided
for in the respective documentation, whether or not a claim for
post-petition interest is allowed in any such proceeding), fees, costs and
indemnities) of such Pledgor owing to the Secured Creditors, whether now
existing or hereafter incurred under, arising out of, or in connection
with, each Credit Document to which such Pledgor is a party (including, in
the case of each Pledgor that is a Guarantor, all such obligations,
liabilities and indebtedness of such Pledgor under its Guaranty) and the
due performance and compliance by such Pledgor with all of the terms,
conditions and agreements contained in each such Credit Document;

(ii) any and all sums advanced by the Pledgee in order to preserve
the Collateral (as hereinafter defined) or preserve its security interest
in the Collateral;

(iii) in the event of any proceeding for the collection or
enforcement of any indebtedness, obligations or liabilities of such
Pledgor referred to in clause (i) above, after an Event of Default shall
have occurred and be continuing, the reasonable expenses of retaking,
holding, preparing for sale or lease, selling or otherwise disposing of or
realizing on the Collateral, or of any exercise by the Pledgee of its
rights hereunder, together with reasonable attorneys' fees and court
costs; and

(iv) all amounts paid by any Indemnitee as to which such Indemnitee
has the right to reimbursement under Section 11 of this Agreement;

all such obligations, liabilities, indebtedness, sums and expenses set forth in
clauses (i) through (iv) of this Section 1 being herein collectively called the
"Obligations", it being acknowledged and agreed that the "Obligations" shall
include extensions of credit of the types described above, whether outstanding
on the date of this Agreement or extended from time to time after the date of
this Agreement.

2. DEFINITIONS. (a) Unless otherwise defined herein, all capitalized
terms used herein and defined in the Credit Agreement shall be used herein as
therein defined. Reference to singular terms shall include the plural and vice
versa.

(b) The following capitalized terms used herein shall have the
definitions specified below:

"Accounts" shall mean each of (i) the "Account" as defined in the
Citibank Cash Collateral Agreement and (ii) the "Account" as defined in the DBAG
Cash Collateral Agreement.

"Administrative Agent" shall have the meaning set forth in the
recitals hereto.

"Adverse Claim" shall have the meaning given such term in Section
8-102(a)(1) of the UCC.

"Agreement" shall have the meaning set forth in the first paragraph
hereof.

"Certificated Security" shall have the meaning given such term in
Section 8-102(a)(4) of the UCC.

"Citibank Cash Collateral Agreement" shall mean the Cash Collateral
Agreement, dated as of December 10, 2004, between Citibank, N.A. and the
Borrower, as amended, modified and/or supplemented from time to time.

"Clearing Corporation" shall have the meaning given such term in
Section 8-102(a)(5) of the UCC.

"Collateral" shall have the meaning set forth in Section 3.1 hereof.

"Credit Agreement" shall have the meaning set forth in the recitals
hereto.

"DBAG Cash Collateral Agreement" shall mean the Cash Collateral
Agreement, dated as of December 10, 2004, between Deutsche Bank AG New York
Branch and the Borrower, as amended, modified and/or supplemented from time to
time.

"Event of Default" shall mean any Event of Default under, and as
defined in, the Credit Agreement and shall in any event include, without
limitation, any payment default on any of the Obligations after the expiration
of any applicable grace period.

"Existing Collateral" shall mean each of (i) the "Collateral" as
defined in the DBAG Cash Collateral Agreement and (ii) the "Collataral" as
defined in the Citibank Cash Collateral Agreement.

"Financial Asset" shall have the meaning given such term in Section
8-102(a)(9) of the UCC and shall include all securities, cash and all other
property and assets credited from time to time to either Account.

"Holdings" shall have the meaning set forth in the recitals hereto.

"Indemnitees" shall have the meaning set forth in Section 11 hereof.

"Lenders" shall have the meaning set forth in the recitals hereto.

"Limited Liability Company Interests" shall mean the entire limited
liability company membership interest at any time owned by any Pledgor in any
limited liability company.

"Location" of any Pledgor has the meaning given such term in Section
9-307 of the UCC.

"Obligations" shall have the meaning set forth in Section 1 hereof.

"Partnership Interest" shall mean the entire general partnership
interest or limited partnership interest at any time owned by any Pledgor in any
general partnership or limited partnership.

"Pledgee" shall have the meaning set forth in the first paragraph
hereof.

"Pledgor" shall have the meaning set forth in the first paragraph
hereof.

"Proceeds" shall have the meaning given such term in Section
9-102(a)(64) of the UCC.

"Registered Organization" shall have the meaning given such term in
Section 9-102(a)(70) of the UCC.

"Required Secured Creditors" shall mean the Required Lenders (or, to
the extent provided in Section 13.12 of the Credit Agreement, each of the
Lenders).

"Secured Creditors" shall have the meaning set forth in the recitals
hereto.

"Securities Act" shall mean the Securities Act of 1933, as amended,
as in effect from time to time.

"Securities Intermediary" shall have the meaning given such term in
Section 8-102(14) of the UCC.

"Security" and "Securities" shall have the meaning given such term
in Section 8-102(a)(15) of the UCC.

"Security Entitlement" shall have the meaning given such term in
Section 8-102(a)(17) of the UCC.

"Subject Stock" shall mean all Equity Interests of the Pledgors in
their respective Subsidiaries whether such Equity Interests consist of capital
stock, Limited Liability Company Interests, Partnership Interests or otherwise.

"Termination Date" shall have the meaning set forth in Section 20
hereof.

"Transmitting Utility" has the meaning given such term in Section
9-102(a)(80) of the UCC.

"UCC" shall mean the Uniform Commercial Code as in effect in the
State of New York from time to time; provided that all references herein to
specific Sections or subsections of the UCC are references to such Sections or
subsections, as the case may be, of the Uniform Commercial Code as in effect in
the State of New York on the date hereof.

"Uncertificated Security" shall have the meaning given such term in
Section 8-102(a)(18) of the UCC.

3. PLEDGE OF SECURITIES, ETC.

3.1 Pledge. To secure the Obligations now or hereafter owed or to be
performed by such Pledgor, each Pledgor does hereby grant, pledge and assign to
the Pledgee for the benefit of the Secured Creditors, and does hereby create a
continuing security interest (subject to those Liens permitted to exist with
respect to the Collateral pursuant to the terms of all Credit Documents then in
effect) in favor of the Pledgee for the benefit of the Secured Creditors in, all
of its right, title and interest in and to the following, whether now existing
or hereafter from time to time acquired (collectively, the "Collateral"):

(a) all Subject Stock owned or held by such Pledgor from time to
time;

(b) to the extent Subject Stock consists of Limited Liability
Company Interests, all Limited Liability Company Interests owned by such
Pledgor from time to time, whether now existing or hereafter acquired,
including, without limitation, to the fullest extent permitted under the
terms and provisions of the documents and agreements governing such
Limited Liability Company Interests and applicable law:

(A) all its capital therein and its interest in all profits,
income, surpluses, losses and other distributions to which such
Pledgor shall at any time be entitled in respect of such Limited
Liability Company Interests;

(B) all other payments due or to become due to such Pledgor in
respect of Limited Liability Company Interests, whether under any
limited liability company agreement or otherwise, whether as
contractual obligations, damages, insurance proceeds or otherwise;

(C) all of its claims, rights, powers, privileges, authority,
options, security interests, liens and remedies, if any, under any
limited liability company agreement or operating agreement, or at
law or otherwise in respect of such Limited Liability Company
Interests;

(D) all of such Pledgor's rights under any limited liability
company agreement or operating agreement or at law to exercise and
enforce every right, power, remedy, authority, option and privilege
of such Pledgor relating to such Limited Liability Company
Interests, including any power to terminate, cancel or modify any
such limited liability company agreement or operating agreement, to
execute any instruments and to take any and all other action on
behalf of and in the name of any of such Pledgor in respect of such
Limited Liability Company Interests and any such limited liability
company, to make determinations, to exercise any election
(including, but not limited to, election of remedies) or option or
to give or receive any notice, consent, amendment, waiver or
approval, together with full power and authority to demand, receive,
enforce, collect or receipt for any of the foregoing, to enforce or
execute any checks, or other instruments or orders, to file any
claims and to take any action in connection with any of the
foregoing; and

(E) all other property hereafter delivered in substitution for
or in addition to any of the foregoing, all certificates and
instruments representing or evi-

dencing such other property and all cash, securities, interest,
dividends, rights and other property at any time and from time to
time received, receivable or otherwise distributed in respect of or
in exchange for any or all thereof;

(c) to the extent Subject Stock consists of Partnership Interests,
all Partnership Interests owned by such Pledgor from time to time and all
of its right, title and interest in each partnership to which each such
Partnership Interest relates, whether now existing or hereafter acquired,
including, without limitation, to the fullest extent permitted under the
terms and provisions of the documents and agreements governing such
Partnership Interests and applicable law:

(A) all its capital therein and its interest in all profits,
income, surpluses, losses and other distributions to which such
Pledgor shall at any time be entitled in respect of such Partnership
Interests;

(B) all other payments due or to become due to such Pledgor in
respect of such Partnership Interests, whether under any partnership
agreement or otherwise, whether as contractual obligations, damages,
insurance proceeds or otherwise;

(C) all of its claims, rights, powers, privileges, authority,
options, security interests, liens and remedies, if any, under any
partnership agreement or operating agreement, or at law or otherwise
in respect of such Partnership Interests;

(D) all of such Pledgor's rights under any partnership
agreement or operating agreement or at law to exercise and enforce
every right, power, remedy, authority, option and privilege of such
Pledgor relating to such Partnership Interests, including any power
to terminate, cancel or modify any partnership agreement or
operating agreement, to execute any instruments and to take any and
all other action on behalf of and in the name of such Pledgor in
respect of such Partnership Interests and any such partnership, to
make determinations, to exercise any election (including, but not
limited to, election of remedies) or option or to give or receive
any notice, consent, amendment, waiver or approval, together with
full power and authority to demand, receive, enforce, collect or
receipt for any of the foregoing, to enforce or execute any checks,
or other instruments or orders, to file any claims and to take any
action in connection with any of the foregoing; and

(E) all other property hereafter delivered in substitution for
or in addition to any of the foregoing, all certificates and
instruments representing or evidencing such other property and all
cash, securities, interest, dividends, rights and other property at
any time and from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all thereof;

(d) the Existing Collateral; and

(e) all Proceeds of any and all of the foregoing.

provided that (i) no Pledgor shall be required at any time to pledge hereunder
any Equity Interest (or any Proceeds thereof) held by such Pledgor in the STP
Nuclear Operating Company and (ii) so long as no Event of Default has occurred
and is continuing, any and all Liens created hereby shall, without any further
action by any Person, be released in respect of amounts paid by any Pledgor as
cash Dividends in compliance with Section 9.06 of the Credit Agreement,
immediately upon such payment.

3.2 Procedures. (a) To the extent that any Pledgor at any time or
from time to time owns, acquires or obtains any right, title or interest in any
Collateral, such Collateral shall automatically (and without the taking of any
action by such Pledgor) be pledged pursuant to Section 3.1 of this Agreement
and, in addition thereto, such Pledgor shall (to the extent provided below) take
the following actions as set forth below (as promptly as practicable and, in any
event, within 10 days after it obtains such Collateral) for the benefit of the
Pledgee and the other Secured Creditors:

(i) with respect to a Certificated Security (other than a
Certificated Security credited to an Account or on the books of a Clearing
Corporation or Securities Intermediary), such Pledgor shall physically
deliver such Certificated Security to the Pledgee, endorsed to the Pledgee
or endorsed in blank;

(ii) with respect to an Uncertificated Security (other than an
Uncertificated Security credited to an Account or on the books of a
Clearing Corporation or Securities Intermediary), such Pledgor shall cause
the issuer of such Uncertificated Security to duly authorize, execute, and
deliver to the Pledgee, an agreement for the benefit of the Pledgee and
the other Secured Creditors substantially in the form of Annex F hereto
(appropriately completed to the satisfaction of the Pledgee and with such
modifications, if any, as shall be satisfactory to the Pledgee) pursuant
to which such issuer agrees to comply with any and all instructions
originated by the Pledgee without further consent by the registered owner
and not to comply with instructions regarding such Uncertificated Security
(and any Partnership Interests and Limited Liability Company Interests
issued by such issuer) originated by any other Person other than a court
of competent jurisdiction;

(iii) with respect to a Certificated Security, Uncertificated
Security, Partnership Interest or Limited Liability Company Interest
credited on the books of a Clearing Corporation or Securities Intermediary
(including a Federal Reserve Bank, Participants Trust Company or The
Depository Trust Company) (other than any Collateral credited to an
Account), such Pledgor shall promptly notify the Pledgee thereof and shall
promptly take (x) all actions required (i) to comply with the applicable
rules of such Clearing Corporation or Securities Intermediary and (ii) to
perfect the security interest of the Pledgee under applicable law
(including, in any event, under Sections 9-314(a), (b) and (c), 9-106 and
8-106(d) of the UCC) and (y) such other actions as the Pledgee deems
necessary or desirable to effect the foregoing; and

(iv) with respect to a Partnership Interest or a Limited Liability
Company Interest (other than a Partnership Interest or Limited Liability
Company Interest credited to an Account or on the books of a Clearing
Corporation or Securities Intermediary), (1)

if such Partnership Interest or Limited Liability Company Interest is
represented by a certificate and is a Security, the procedure set forth in
Section 3.2(a)(i) hereof, and (2) if such Partnership Interest or Limited
Liability Company Interest is not represented by a certificate and is a
Security for purposes of the UCC, the procedure set forth in Section
3.2(a)(ii) hereof.

(b) In addition to the actions required to be taken pursuant to
Section 3.2(a) hereof, each Pledgor shall take the following additional actions
with respect to the Collateral:

(i) with respect to all Collateral of such Pledgor whereby or with
respect to which the Pledgee may obtain "control" thereof within the
meaning of Section 8-106 of the UCC (or under any provision of the UCC as
same may be amended or supplemented from time to time, or under the laws
of any relevant State other than the State of New York), such Pledgor
shall take all actions as may be requested from time to time by the
Pledgee so that (subject to prior Liens in respect of Existing Collateral)
"control" of such Collateral is obtained and at all times held by the
Pledgee; and

(ii) each Pledgor shall from time to time upon request by the
Pledgee, cause appropriate financing statements (on appropriate forms)
under the Uniform Commercial Code as in effect in the various relevant
States, covering all Collateral hereunder (with the form of such financing
statements to be satisfactory to the Pledgee), to be filed in the relevant
filing offices so that at all times the Pledgee's security interest in all
Collateral which can be perfected by the filing of such financing
statements (in each case to the maximum extent perfection by filing may be
obtained under the laws of the relevant States, including, without
limitation, Section 9-312(a) of the UCC) is so perfected.

3.3 Subsequently Acquired Collateral. If any Pledgor shall acquire
(by purchase, stock dividend, distribution or otherwise) any additional
Collateral at any time or from time to time after the date hereof, (i) such
Collateral shall automatically (and without any further action being required to
be taken) be subject to the pledge and security interests created pursuant to
Section 3.1 hereof and, furthermore, such Pledgor will thereafter take (or cause
to be taken) all action (as promptly as practicable and, in any event, within 10
days after it obtains such Collateral) with respect to such Collateral in
accordance with the procedures set forth in Section 3.2 hereof, and will
promptly thereafter deliver to the Pledgee (i) a certificate executed by an
authorized officer of such Pledgor describing such Collateral and certifying
that the same has been duly pledged in favor of the Pledgee (for the benefit of
the Secured Creditors) hereunder and (ii) supplements to Annexes A through E
hereto as are necessary to cause such Annexes to be complete and accurate at
such time.

3.4 Transfer Taxes. Each pledge of Collateral under Section 3.1 or
Section 3.3 hereof shall be accompanied by any transfer tax stamps required in
connection with the pledge of such Collateral.

3.5 Certain Representations and Warranties Regarding the Collateral.
Each Pledgor represents and warrants that on the date hereof: (i) each
Subsidiary of such Pledgor, and the direct ownership thereof, is listed in Annex
B hereto; (ii) the Limited Liability Company Interests held by such Pledgor
consist of the number and type of interests of the Persons

described in Annex C hereto; (iii) each such Limited Liability Company Interest
referenced in clause (ii) of this paragraph constitutes that percentage of the
issued and outstanding equity interest of the issuing Person as set forth in
Annex C hereto; (iv) the Partnership Interests held by such Pledgor consist of
the number and type of interests of the Persons described in Annex D hereto; (v)
each such Partnership Interest referenced in clause (iv) of this paragraph
constitutes that percentage or portion of the entire partnership interest of the
Partnership as set forth in Annex D hereto; (vi) exact address of each chief
executive office of such Pledgor is listed on Annex E hereto; (vii) the Pledgor
has complied with the respective procedure set forth in Section 3.2(a) hereof
with respect to each item of Collateral described in Annexes C and D hereto; and
(viii) on the date hereof, such Pledgor owns no other Limited Liability Company
Interests or Partnership Interests.

4. APPOINTMENT OF SUB-AGENTS; ENDORSEMENTS, ETC. The Pledgee shall
have the right to appoint one or more sub-agents for the purpose of retaining
physical possession of the Collateral, which may be held (in the discretion of
the Pledgee) in the name of the relevant Pledgor, endorsed or assigned in blank
or in favor of the Pledgee or any nominee or nominees of the Pledgee or a
sub-agent appointed by the Pledgee.

5. VOTING, ETC., WHILE NO EVENT OF DEFAULT. Unless and until there
shall have occurred and be continuing an Event of Default, each Pledgor shall be
entitled to exercise any and all voting and other consensual rights pertaining
to the Collateral owned by it, and to give consents, waivers or ratifications in
respect thereof; provided that, in each case, no vote shall be cast or any
consent, waiver or ratification given or any action taken or omitted to be taken
which would violate, result in a breach of any covenant contained in, or be
inconsistent with any of the terms of any Credit Document, or which could
reasonably be expected to have the effect of materially impairing the value of
the Collateral, taken as a whole, unless expressly permitted by the terms of the
Credit Documents. All such rights of each Pledgor to vote and to give consents,
waivers and ratifications shall cease in case an Event of Default has occurred
and is continuing, and Section 7 hereof shall become applicable. Unless and
until there shall have occurred and be continuing an Event of Default, the
Pledgee shall not deliver any instructions or orders to any issuer of
Uncertificated Securities, Limited Liability Company Interests and/or
Partnership Interests under any agreement entered into pursuant to Section
3.2(a)(ii) hereof.

6. DIVIDENDS AND OTHER DISTRIBUTIONS. Unless and until there shall
have occurred and be continuing an Event of Default, all cash dividends, cash
distributions, cash Proceeds and other cash amounts payable in respect of the
Collateral shall be paid, free and clear of all Liens created hereby to the
respective Pledgor, provided, that all cash dividends payable in respect of the
pledged Subject Stock which are determined by the Pledgee to represent in whole
or in part an extraordinary, liquidating or other distribution in return of
capital shall be paid, to the extent so determined to represent an
extraordinary, liquidating or other distribution in return of capital, to the
Pledgee and retained by it as part of the Collateral. Except to the extent
credited to an Account, the Pledgee shall be entitled to receive directly, and
to retain as part of the Collateral:

(i) all other or additional stock, notes, certificates, limited
liability company interests, partnership interests, instruments or other
securities or property (including, but

not limited to, cash dividends other than as set forth above) paid or
distributed by way of dividend or otherwise in respect of the Collateral;

(ii) all other or additional stock, notes, certificates, limited
liability company interests, partnership interests, instruments or other
securities or property (including, but not limited to, cash (although such
cash may be paid directly to the respective Pledgor so long as no Event of
Default then exists)) paid or distributed in respect of the Collateral by
way of stock-split, spin-off, split-up, reclassification, combination of
shares or similar rearrangement; and

(iii) all other or additional stock, notes, certificates, limited
liability company interests, partnership interests, instruments or other
securities or property (including, but not limited to, cash) which may be
paid in respect of the Collateral by reason of any consolidation, merger,
exchange of stock, conveyance of assets, liquidation or similar corporate
or other reorganization.

Nothing contained in this Section 6 shall limit or restrict in any way the
Pledgee's right to receive the proceeds of the Collateral in any form in
accordance with Section 3 of this Agreement. All dividends, distributions or
other payments which are received by any Pledgor contrary to the provisions of
this Section 6 or Section 7 hereof shall be received in trust for the benefit of
the Pledgee, shall be segregated from other property or funds of such Pledgor
and shall be forthwith paid over to the Pledgee as Collateral in the same form
as so received (with any necessary endorsement).

7. REMEDIES IN CASE OF AN EVENT OF DEFAULT. (a) If there shall have
occurred and be continuing an Event of Default, then and in every such case, the
Pledgee shall be entitled to exercise all of the rights, powers and remedies
(whether vested in it by this Agreement, any other Credit Document or by law)
for the protection and enforcement of its rights in respect of the Collateral,
and the Pledgee shall (subject to prior Liens in respect of Existing Collateral)
be entitled to exercise all the rights and remedies of a secured party under the
UCC as in effect in any relevant jurisdiction and also shall be entitled,
without limitation, to exercise the following rights, which each Pledgor hereby
agrees to be commercially reasonable:

(i) to receive all amounts payable in respect of the Collateral
otherwise payable under Section 6 hereof to the respective Pledgor;

(ii) to transfer all or any part of the Collateral into the
Pledgee's name or the name of its nominee or nominees;

(iii) to vote (and exercise all rights and powers in respect of
voting) all or any part of the Collateral (whether or not transferred into
the name of the Pledgee) and give all consents, waivers and ratifications
in respect of the Collateral and otherwise act with respect thereto as
though it were the outright owner thereof (each Pledgor hereby irrevocably
constituting and appointing the Pledgee the proxy and attorney-in-fact of
such Pledgor, with full power of substitution to do so);

(iv) at any time and from time to time to sell, assign and deliver,
or grant options to purchase, all or any part of the Collateral, or any
interest therein, at any public or private sale, without demand of
performance, advertisement or, notice of intention to sell or of the time
or place of sale or adjournment thereof or to redeem or otherwise purchase
or dispose (all of which are hereby waived by each Pledgor), for cash, on
credit or for other property, for immediate or future delivery without any
assumption of credit risk, and for such price or prices and on such terms
as the Pledgee in its absolute discretion may determine, provided at least
10 days' written notice of the time and place of any such sale shall be
given to the respective Pledgor. The Pledgee shall not be obligated to
make any such sale of Collateral regardless of whether any such notice of
sale has theretofore been given. Each Pledgor hereby waives and releases
to the fullest extent permitted by law any right or equity of redemption
with respect to the Collateral, whether before or after sale hereunder,
and all rights, if any, of marshalling the Collateral and any other
security or the Obligations or otherwise. At any such sale, unless
prohibited by applicable law, the Pledgee on behalf of the Secured
Creditors may bid for and purchase all or any part of the Collateral so
sold free from any such right or equity of redemption. Neither the Pledgee
nor any other Secured Creditor shall be liable for failure to collect or
realize upon any or all of the Collateral or for any delay in so doing nor
shall any of them be under any obligation to take any action whatsoever
with regard thereto; and

(v) to set off any and all Collateral against any and all
Obligations, and subject to the Intercreditor Agreements, apply the
Existing Collateral to the payment of the Obligations.

(b) Subject to prior Liens in respect of Existing Collateral, if
there shall have occurred and be continuing an Event of Default, then and in
every such case, the Pledgee shall be entitled to vote (and exercise all rights
and powers in respect of voting) all or any part of the Collateral (whether or
not transferred into the name of the Pledgee) and give all consents, waivers and
ratifications in respect of the Collateral and otherwise act with respect
thereto as though it were the outright owner thereof (each Pledgor hereby
irrevocably constituting and appointing the Pledgee the proxy and
attorney-in-fact of such Pledgor, with full power of substitution to do so).

8. REMEDIES, CUMULATIVE, ETC. Each and every right, power and remedy
of the Pledgee provided for in this Agreement or in any other Credit Document,
or now or hereafter existing at law or in equity or by statute shall be
cumulative and concurrent and shall be in addition to every other such right,
power or remedy. The exercise or beginning of the exercise by the Pledgee or any
other Secured Creditor of any one or more of the rights, powers or remedies
provided for in this Agreement or any other Credit Document or now or hereafter
existing at law or in equity or by statute or otherwise shall not preclude the
simultaneous or later exercise by the Pledgee or any other Secured Creditor of
all such other rights, powers or remedies, and no failure or delay on the part
of the Pledgee or any other Secured Creditor to exercise any such right, power
or remedy shall operate as a waiver thereof. No notice to or demand on any
Pledgor in any case shall entitle it to any other or further notice or demand in
similar or other circumstances or constitute a waiver of any of the rights of
the Pledgee or any other Secured Creditor to any other or further action in any
circumstances without notice or

demand. By accepting the benefits of this Agreement and each other Security
Document, the Secured Creditors agree that this Agreement may be enforced only
by the action of the Pledgee, in each case, acting upon the instructions of the
Required Secured Creditors, and that no other Secured Creditor shall have any
right individually to seek to enforce or to enforce this Agreement or to realize
upon the security to be granted hereby, it being understood and agreed that such
rights and remedies may be exercised by the Pledgee for the benefit of the
Secured Creditors upon the terms of this Agreement, and with respect to the
Existing Collateral, subject to the terms of the Intercreditor Agreements and
applicable law relating to priority of Liens.

9. APPLICATION OF PROCEEDS. (a) All monies collected by the Pledgee
upon any sale or other disposition of the Collateral, together with all other
monies received by the Pledgee hereunder, shall be applied as follows:

(i) first, to the payment of all amounts owing the Pledgee of the
type described in clauses (iii) and (iv) of the definition of
"Obligations";

(ii) second, to the extent proceeds remain after the application
pursuant to the preceding clause (i), to the payment of the outstanding
Obligations in such order as will be determined by the Pledgee; and

(iii) third, to the extent proceeds remain after the application
pursuant to the preceding clauses (i) and (ii), inclusive, and following
the termination of this Agreement pursuant to Section 20(a) hereof, to the
relevant Pledgor or to whomever may be lawfully entitled to receive such
surplus.

(b) All payments required to be made hereunder shall be made to the
Administrative Agent for the account of the Secured Creditors.

(c) It is understood and agreed that each Pledgor shall remain liable with
respect to its respective Obligations to the extent of any deficiency between
the amount of the proceeds of the Collateral pledged by it hereunder and the
aggregate amount of such Obligations.

10. PURCHASERS OF COLLATERAL. Upon any sale of the Collateral by the
Pledgee hereunder (whether by virtue of the power of sale herein granted,
pursuant to judicial process or otherwise), the receipt of the Pledgee or the
officer making such sale shall be a sufficient discharge to the purchaser or
purchasers of the Collateral so sold, and such purchaser or purchasers shall not
be obligated to see to the application of any part of the purchase money paid
over to the Pledgee or such officer or be answerable in any way for the
misapplication or nonapplication thereof.

11. INDEMNITY. Each Pledgor jointly and severally agrees (i) to
indemnify, reimburse and hold harmless the Pledgee and each other Secured
Creditor and their respective successors, assigns, employees, agents and
affiliates (individually an "Indemnitee", and collectively, the "Indemnitees")
from and against any and all obligations, damages, injuries, penalties, claims,
demands, losses, judgments and liabilities (including, without limitation,
liabilities for penalties) of whatsoever kind or nature, and (ii) to reimburse
each Indemnitee for all reasonable costs, expenses and disbursements, including
reasonable attorneys' fees and expenses, in each case arising out of or
resulting from this Agreement or the exercise by any

Indemnitee of any right or remedy granted to it hereunder or under any other
Credit Document (but excluding any obligations, damages, injuries, penalties,
claims, demands, losses, judgments and liabilities (including, without
limitation, liabilities for penalties) or expenses of whatsoever kind or nature
to the extent incurred or arising by reason of gross negligence or willful
misconduct of such Indemnitee (as determined by a court of competent
jurisdiction in a final and non-appealable decision)). In no event shall the
Pledgee hereunder be liable, in the absence of gross negligence or willful
misconduct on its part (as determined by a court of competent jurisdiction in a
final and non-appealable decision), for any matter or thing in connection with
this Agreement other than to account for monies or other property actually
received by it in accordance with the terms hereof. If and to the extent that
the obligations of any Pledgor under this Section 11 are unenforceable for any
reason, such Pledgor hereby agrees to make the maximum contribution to the
payment and satisfaction of such obligations which is permissible under
applicable law. The indemnity obligations of each Pledgor contained in this
Section 11 shall continue in full force and effect notwithstanding the full
payment of all the Notes issued under the Credit Agreement and the payment of
all other Obligations and notwithstanding the discharge thereof.

12. PLEDGEE NOT A PARTNER OR LIMITED LIABILITY COMPANY MEMBER. (a)
Nothing herein shall be construed to make the Pledgee or any other Secured
Creditor liable as a member of any limited liability company or as a partner of
any partnership and neither the Pledgee nor any other Secured Creditor by virtue
of this Agreement or otherwise (except as referred to in the following sentence)
shall have any of the duties, obligations or liabilities of a member of any
limited liability company or as a partner in any partnership. To the extent
permitted by law, the parties hereto expressly agree that, unless the Pledgee
shall become the absolute owner of Collateral consisting of a Limited Liability
Company Interest or a Partnership Interest pursuant hereto, this Agreement shall
not be construed as creating a partnership or joint venture among the Pledgee,
any other Secured Creditor, any Pledgor and/or any other Person.

(b) Except as provided in the last sentence of paragraph (a) of this
Section 12, the Pledgee, by accepting this Agreement, did not intend to become a
member of any limited liability company or a partner of any partnership or
otherwise be deemed to be a co-venturer with respect to any Pledgor, any limited
liability company, partnership and/or any other Person either before or after an
Event of Default shall have occurred. The Pledgee shall have only those powers
set forth herein and the Secured Creditors shall assume none of the duties,
obligations or liabilities of a member of any limited liability company or as a
partner of any partnership or any Pledgor except as provided in the last
sentence of paragraph (a) of this Section 12.

(c) The Pledgee and the other Secured Creditors shall not be
obligated to perform or discharge any obligation of any Pledgor as a result of
the pledge hereby effected.

(d) The acceptance by the Pledgee of this Agreement, with all the
rights, powers, privileges and authority so created, shall not at any time or in
any event obligate the Pledgee or any other Secured Creditor to appear in or
defend any action or proceeding relating to the Collateral to which it is not a
party, or to take any action hereunder or thereunder, or to expend any money or
incur any expenses or perform or discharge any obligation, duty or liability
under the Collateral.

13. FURTHER ASSURANCES; POWER-OF-ATTORNEY. (a) Each Pledgor agrees
that it will join with the Pledgee in executing and, at such Pledgor's own
expense, file and refile under the UCC or other applicable law such financing
statements, continuation statements and other documents, in form reasonably
acceptable to the Pledgee, in such offices as the Pledgee (acting on its own or
on the instructions of the Required Secured Creditors) may reasonably deem
necessary or appropriate and wherever required or permitted by law in order to
perfect and preserve the Pledgee's security interest in the Collateral hereunder
and hereby authorizes the Pledgee to file financing statements and amendments
thereto relative to all or any part of the Collateral without the signature of
such Pledgor where permitted by law, and agrees to do such further acts and
things and to execute and deliver to the Pledgee such additional conveyances,
assignments, agreements and instruments as the Pledgee may reasonably require or
deem advisable to carry into effect the purposes of this Agreement or to further
assure and confirm unto the Pledgee its rights, powers and remedies hereunder or
thereunder.

(b) Each Pledgor hereby constitutes and appoints the Pledgee its
true and lawful attorney-in-fact, irrevocably, with full authority in the place
and stead of such Pledgor and in the name of such Pledgor or otherwise, from
time to time after the occurrence and during the continuance of an Event of
Default, in the Pledgee's discretion, to act, require, demand, receive and give
acquittance for any and all monies and claims for monies due or to become due to
such Pledgor under or arising out of the Collateral, to endorse any checks or
other instruments or orders in connection therewith and to file any claims or
take any action or institute any proceedings and to execute any instrument which
the Pledgee may deem necessary or advisable to accomplish the purposes of this
Agreement, which appointment as attorney is coupled with an interest.

14. THE PLEDGEE AS COLLATERAL AGENT. The Pledgee will hold in
accordance with this Agreement all items of the Collateral at any time received
under this Agreement. It is expressly understood, acknowledged and agreed by
each Secured Creditor that by accepting the benefits of this Agreement each such
Secured Creditor acknowledges and agrees that the obligations of the Pledgee as
holder of the Collateral and interests therein and with respect to the
disposition thereof, and otherwise under this Agreement, are only those
expressly set forth in this Agreement and in Section 12 of the Credit Agreement.
The Pledgee shall act hereunder on the terms and conditions set forth herein and
in Section 12 of the Credit Agreement.

15. TRANSFER BY THE PLEDGORS. (a) Except as permitted pursuant to
the Credit Agreement, prior to the date all Obligations have been paid in full
and all Commitments under the Credit Agreement have been terminated, no Pledgor
will sell or otherwise dispose of, grant any option with respect to, or
mortgage, pledge or otherwise encumber any of the Collateral or any interest
therein.

(b) Notwithstanding anything to the contrary contained in the Cash
Collateral Agreements, the Borrower shall not request the release of Existing
Collateral from the Accounts (under and as defined in each Cash Collateral
Agreement) until the Termination Date (defined below) has occurred.

16. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PLEDGORS. (a)
Each Pledgor represents, warrants and covenants as to itself and each of its
Subsidiaries that:

(i) it is the legal, beneficial and record owner of, and has good
and marketable title to, all of its Collateral consisting of Subject Stock
and that it has sufficient interest in all of its Collateral in which a
security interest is purported to be created hereunder for such security
interest to attach (subject, in each case, to no pledge, lien, mortgage,
hypothecation, security interest, charge, option, Adverse Claim or other
encumbrance whatsoever, except the liens and security interests created by
this Agreement or permitted under the Credit Documents);

(ii) it has full power, authority and legal right to pledge all the
Collateral pledged by it pursuant to this Agreement;

(iii) this Agreement has been duly authorized, executed and
delivered by such Pledgor and constitutes a legal, valid and binding
obligation of such Pledgor enforceable against such Pledgor in accordance
with its terms, except to the extent that the enforceability thereof may
be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally and
by general equitable principles (regardless of whether enforcement is
sought in equity or at law);

(iv) except to the extent already obtained or made, no consent of
any other party (including, without limitation, any stockholder, partner,
member or creditor of such Pledgor or any of its Subsidiaries) and no
consent, license, permit, approval or authorization of, exemption by,
notice or report to, or registration, filing or declaration with, any
governmental authority is required to be obtained by such Pledgor in
connection with (a) the execution, delivery or performance of this
Agreement by such Pledgor, (b) the validity or enforceability of this
Agreement against such Pledgor (except as set forth in clause (iii)
above), (c) the perfection or enforceability of the Pledgee's security
interest in such Pledgor's Collateral or (d) except for compliance with or
as may be required by applicable securities laws, the exercise by the
Pledgee of any of its rights or remedies provided herein;

(v) neither the execution, delivery or performance by such Pledgor
of this Agreement or any other Credit Document to which it is a party, nor
compliance by it with the terms and provisions hereof and thereof nor the
consummation of the transactions contemplated therein: (i) will contravene
any provision of any applicable law, statute, rule or regulation, or any
applicable order, writ, injunction or decree of any court, arbitrator or
governmental instrumentality, domestic or foreign, applicable to such
Pledgor; (ii) will conflict or be inconsistent with or result in any
breach of any of the terms, covenants, conditions or provisions of, or
constitute a default under, or result in the creation or imposition of (or
the obligation to create or impose) any Lien (except pursuant to the
Security Documents) upon any of the properties or assets of such Pledgor
or any of its Subsidiaries pursuant to the terms of any indenture, lease,
mortgage, deed of trust, credit agreement, loan agreement or any other
material agreement, contract or other instrument to which such Pledgor or
any of its Subsidiaries is a party or is otherwise

bound, or by which it or any of its properties or assets is bound or to
which it may be subject; or (iii) will violate any provision of the
certificate of incorporation, by-laws, certificate of partnership,
partnership agreement, certificate of formation or limited liability
company agreement (or equivalent organizational documents), as the case
may be, of such Pledgor or any of its Subsidiaries;

(vi) all of such Pledgor's Collateral consisting of Subject Stock
has been duly and validly issued, is fully paid and non-assessable and is
subject to no options to purchase or similar rights;

(vii) the pledge, collateral assignment and delivery to the Pledgee
of such Pledgor's Subject Stock consisting of Certificated Securities (if
any) pursuant to this Agreement creates a valid and perfected first
priority security interest in such Certificated Securities, and the
proceeds thereof, subject to no prior Lien or encumbrance or to any
agreement purporting to grant to any third party a Lien or encumbrance on
the property or assets of such Pledgor which would include such Securities
(other than the liens and security interests permitted under the Credit
Documents then in effect) and the Pledgee is entitled to all the rights,
priorities and benefits afforded by the UCC or other relevant law as
enacted in any relevant jurisdiction to perfect security interests in
respect of such Collateral;

(viii) "control" (as defined in Section 8-106 of the UCC) has been
obtained by the Pledgee over all of such Pledgor's Subject Stock
consisting of Securities (if any) with respect to which such "control" may
be obtained pursuant to Section 8-106 of the UCC, except to the extent
that the obligation of the applicable Pledgor to provide the Pledgee with
"control" of such Collateral has not yet arisen under this Agreement;
provided that in the case of the Pledgee obtaining "control" over
Collateral consisting of a Security Entitlement, such Pledgor shall have
taken all steps in its control so that the Pledgee obtains "control" over
such Security Entitlement; and

(ix) no Limited Liability Company Interest listed on Annex C or
Partnership Interest listed on Annex D hereto is a "Security" as defined
in the UCC.

(b) Each Pledgor covenants and agrees that it will defend the
Pledgee's right, title and security interest in and to such Pledgor's Collateral
against the claims and demands of all persons whomsoever; and each Pledgor
covenants and agrees that it will have like title to and right to pledge any
other property at any time hereafter pledged to the Pledgee by such Pledgor as
Collateral hereunder and will likewise defend the right thereto and security
interest therein of the Pledgee and the other Secured Creditors.

17. LEGAL NAMES; TYPE OF ORGANIZATION (AND WHETHER A REGISTERED
ORGANIZATION AND/OR A TRANSMITTING UTILITY); JURISDICTION OF ORGANIZATION;
LOCATION; ORGANIZATIONAL IDENTIFICATION NUMBERS; CHANGES THERETO; ETC. The exact
legal name of each Pledgor, the type of organization of such Pledgor, whether or
not such Pledgor is a Registered Organization, the jurisdiction of organization
of such Pledgor, such Pledgor's Location, the organizational identification
number (if any) of each Pledgor, and whether or not such Pledgor is a
Transmitting Utility, is listed on

Annex A hereto for such Pledgor. No Pledgor shall change its legal name, its
type of organization, its status as a Registered Organization (in the case of a
Registered Organization), its status as a Transmitting Utility or as a Person
which is not a Transmitting Utility, as the case may be, its jurisdiction of
organization, its Location, or its organizational identification number (if
any), except that any such changes shall be permitted (so long as not in
violation of the applicable requirements of the Credit Documents and so long as
same do not involve (x) a Registered Organization ceasing to constitute same or
(y) any Pledgor changing its jurisdiction of organization or Location from the
United States or a State thereof to a jurisdiction of organization or Location,
as the case may be, outside the United States or a State thereof) if (i) it
shall have given to the Collateral Agent not less than 15 days' prior written
notice of each change to the information listed on Annex A (as adjusted for any
subsequent changes thereto previously made in accordance with this sentence),
together with a supplement to Annex A which shall correct all information
contained therein for such Pledgor, and (ii) in connection with the respective
such change or changes, it shall have taken all action reasonably requested by
the Collateral Agent to maintain the security interests of the Collateral Agent
in the Collateral intended to be granted hereby at all times fully perfected and
in full force and effect. In addition, to the extent that any Pledgor does not
have an organizational identification number on the date hereof and later
obtains one, such Pledgor shall promptly thereafter deliver a notification of
the Collateral Agent of such organizational identification number and shall take
all actions reasonably satisfactory to the Collateral Agent to the extent
necessary to maintain the security interest of the Collateral Agent in the
Collateral intended to be granted hereby fully perfected and in full force and
effect.

18. PLEDGORS' OBLIGATIONS ABSOLUTE, ETC. The obligations of each
Pledgor under this Agreement shall be absolute and unconditional and shall
remain in full force and effect without regard to, and shall not be released,
suspended, discharged, terminated or otherwise affected by, any circumstance or
occurrence whatsoever (other than termination of this Agreement pursuant to
Section 20 hereof), including, without limitation:

(i) any renewal, extension, amendment or modification of, or
addition or supplement to or deletion from any Credit Document (other than
this Agreement in accordance with its terms), or any other instrument or
agreement referred to therein, or any assignment or transfer of any
thereof;

(ii) any waiver, consent, extension, indulgence or other action or
inaction under or in respect of any such agreement or instrument
including, without limitation, this Agreement (other than a waiver,
consent or extension with respect to this Agreement in accordance with its
terms);

(iii) any furnishing of any additional security to the Pledgee or
its assignee or any acceptance thereof or any release of any security by
the Pledgee or its assignee;

(iv) any limitation on any party's liability or obligations under
any such instrument or agreement or any invalidity or unenforceability, in
whole or in part, of any such instrument or agreement or any term thereof;

or

(v) any bankruptcy, insolvency, reorganization, composition,
adjustment, dissolution, liquidation or other like proceeding relating to
any Pledgor or any Subsidiary of any Pledgor, or any action taken with
respect to this Agreement by any trustee or receiver, or by any court, in
any such proceeding, whether or not such Pledgor shall have notice or
knowledge of any of the foregoing.

19. SALE OF COLLATERAL WITHOUT REGISTRATION. If at any time when the
Pledgee shall determine to exercise its right to sell all or any part of the
Collateral consisting of Subject Stock pursuant to Section 7 hereof, and such
Collateral or the part thereof to be sold shall not, for any reason whatsoever,
be effectively registered under the Securities Act, as then in effect, the
Pledgee may, in its sole and absolute discretion, sell such Collateral or part
thereof by private sale in such manner and under such circumstances as the
Pledgee may deem necessary or advisable in order that such sale may legally be
effected without such registration. Without limiting the generality of the
foregoing, in any such event the Pledgee, in its sole and absolute discretion
(i) may proceed to make such private sale notwithstanding that a registration
statement for the purpose of registering such Collateral or part thereof shall
have been filed under such Securities Act, (ii) may approach and negotiate with
a single possible purchaser to effect such sale, and (iii) may restrict such
sale to a purchaser who will represent and agree that such purchaser is
purchasing for its own account, for investment, and not with a view to the
distribution or sale of such Collateral or part thereof. In the event of any
such sale, the Pledgee shall incur no responsibility or liability for selling
all or any part of the Collateral at a price which the Pledgee, in its sole and
absolute discretion, may in good faith deem reasonable under the circumstances,
notwithstanding the possibility that a substantially higher price might be
realized if the sale were deferred until the registration as aforesaid.

20. TERMINATION; RELEASE. (a) On the Termination Date (as defined
below), this Agreement shall terminate (provided that all indemnities set forth
herein including, without limitation, in Section 11 hereof shall survive any
such termination) and the Pledgee, at the request and expense of such Pledgor,
will execute and deliver to such Pledgor a proper instrument or instruments
(including UCC termination statements) acknowledging the satisfaction and
termination of this Agreement (including, without limitation, UCC termination
statements and instruments of satisfaction, discharge and/or reconveyance), and
will duly release from the security interest created hereby and assign, transfer
and deliver to such Pledgor (without recourse and without any representation or
warranty) such of the Collateral as may be in the possession of the Pledgee and
as has not theretofore been sold or otherwise applied or released pursuant to
this Agreement, together with any moneys at the time held by the Pledgee or any
of its sub-agents hereunder and, with respect to any Collateral consisting of an
Uncertificated Security, a Partnership Interest or a Limited Liability Company
Interest (other than an Uncertificated Security, Partnership Interest or Limited
Liability Company Interest credited to an Account or on the books of a Clearing
Corporation or Securities Intermediary), a termination of the agreement relating
thereto executed and delivered by the issuer of such Uncertificated Security
pursuant to Section 3.2(a)(ii) or by the respective partnership or limited
liability company pursuant to Section 3.2(a)(iv)(2). As used in this Agreement,
"Termination Date" shall mean the date upon which the Commitments under the
Credit Agreement have been terminated, no Note (as defined in the Credit
Agreement) is outstanding (and all Loans have been paid in full), and all other
Obligations (other than indemnities described in Section 11 hereof and described
in Section 13.01 of the Credit Agreement, and any other indemnities set forth in
any

other Security Documents, in each case which are not then due and payable) then
due and payable have been paid in full.

(b) In the event that any part of the Collateral is sold or
otherwise disposed of (to a Person other than a Credit Party) (x) at any time
prior to the time at which all Obligations have been paid in full and all
Commitments under the Credit Agreement have been terminated, in connection with
a sale or disposition permitted by Section 9.02 of the Credit Agreement or is
otherwise released at the direction of the Required Lenders (or all the Lenders
if required by Section 13.12 of the Credit Agreement) or (y) at any time
thereafter, to the extent permitted by the other Credit Documents, and in the
case of clauses (x) and (y), the proceeds of such sale or disposition (or from
such release) are applied in accordance with the terms of the Credit Agreement
or such other Credit Document, as the case may be, to the extent required to be
so applied, the Pledgee, at the request and expense of such Pledgor, will duly
release from the security interest created hereby (and will execute and deliver
such documentation, including termination or partial release statements and the
like in connection therewith) and assign, transfer and deliver to such Pledgor
(without recourse and without any representation or warranty) such of the
Collateral as is then being (or has been) so sold or released and as may be in
the possession of the Pledgee (or, in the case of Collateral held by any
sub-agent designated pursuant to Section 4 hereto, such sub-agent) and has not
theretofore been released pursuant to this Agreement.

(c) At any time that any Pledgor desires that Collateral be released
as provided in the foregoing Section 20(a) or (b), it shall deliver to the
Pledgee (and the relevant sub-agent, if any, designated pursuant to Section 4
hereof) a certificate signed by an authorized officer of such Pledgor stating
that the release of the respective Collateral is permitted pursuant to Section
20(a) or (b) hereof. If reasonably requested by the Pledgee (although the
Pledgee shall have no obligation to make any such request), the relevant Pledgor
shall furnish appropriate legal opinions (from counsel, reasonably acceptable to
the Pledgee) to the effect set forth in the immediately preceding sentence.

(d) The Pledgee shall have no liability whatsoever to any other
Secured Creditor as the result of any release of Collateral by it in accordance
with (or which the Collateral Agent in good faith believes to be in accordance
with) this Section 20.

21. NOTICES, ETC. Except as otherwise specified herein, all notices,
requests, demands or other communications to or upon the respective parties
hereto shall be sent or delivered by mail, telegraph, telex, telecopy, cable or
courier service and all such notices and communications shall, when mailed,
telegraphed, telexed, telecopied, or cabled or sent by courier, be effective
when deposited in the mails, delivered to the telegraph company, cable company
or overnight courier, as the case may be, or sent by telex or telecopier, except
that notices and communications to the Pledgee or any Pledgor shall not be
effective until received by the Pledgee or such Pledgor, as the case may be. All
notices and other communications shall be in writing and addressed as follows:

(a) if to any Pledgor, at its address set forth opposite its
signature below;

(c) if to any Secured Creditor, either (x) to the Administrative
Agent, at the address of the Administrative Agent specified in the Credit
Agreement, or (y) at such address as such Secured Creditor shall have
specified in the Credit Agreement;

or at such other address or addressed to such other individual as shall have
been furnished in writing by any Person described above to the party required to
give notice hereunder.

22. WAIVER; AMENDMENT. Except as provided in Sections 30 and 32
hereof, none of the terms and conditions of this Agreement may be changed,
waived, modified or varied in any manner whatsoever unless in writing duly
signed by each Pledgor directly affected thereby (it being understood that the
addition or release of any Pledgor hereunder shall not constitute a change,
waiver, discharge or termination affecting any Pledgor other than the Pledgor so
added or released) and the Collateral Agent (with the written consent of the
Required Secured Creditors).

23. SUCCESSORS AND ASSIGNS. This Agreement shall create a continuing
security interest in the Collateral and shall (i) remain in full force and
effect, subject to release and/or termination as set forth in Section 20, (ii)
be binding upon each Pledgor, its successors and assigns; provided, however,
that no Pledgor shall assign any of its rights or obligations hereunder without
the prior written consent of the Pledgee (with the prior written consent of the
Required Secured Creditors), and (iii) inure, together with the rights and
remedies of the Pledgee hereunder, to the benefit of the Pledgee, the other
Secured Creditors and their respective successors, transferees and assigns. All
agreements, statements, representations and warranties made by each Pledgor
herein or in any certificate or other instrument delivered by such Pledgor or on
its behalf under this Agreement shall be considered to have been relied upon by
the Secured Creditors and shall survive the execution and delivery of this
Agreement and the other Credit Documents regardless of any investigation made by
the Secured Creditors or on their behalf.

24. HEADINGS DESCRIPTIVE. The headings of the several Sections of
this Agreement are inserted for convenience only and shall not in any way affect
the meaning or construction of any provision of this Agreement.

25. GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE. (a) THIS
AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE
CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW
YORK. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER
CREDIT DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE
UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, IN EACH CASE WHICH ARE
LOCATED IN THE COUNTY OF NEW YORK, AND, BY EXECUTION

AND DELIVERY OF THIS AGREEMENT, EACH PLEDGOR HEREBY IRREVOCABLY ACCEPTS FOR
ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. EACH PLEDGOR HEREBY FURTHER
IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH COURTS LACK PERSONAL JURISDICTION
OVER SUCH PLEDGOR, AND AGREES NOT TO PLEAD OR CLAIM IN ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT
IN ANY OF THE AFORESAID COURTS THAT ANY SUCH C